Carol arranged for a 120-day bank loan at an annual rate of interest of 10 percent. If the loan...

Question:

Carol arranged for a 120-day bank loan at an annual rate of interest of 10 percent. If the loan is for $100,000, how much interest in dollars will she pay, assuming a 360 day year for convenience?

Interest Calculations

Interest on a given amount is the product of the original principal multiplied the rate of interest and time period. In case of partial year time period, the period in days is divided by the number of days in the year.

Answer and Explanation:

Given,

Loan amount P = $100,000

Rate of interest R = 10%

No. of days = 120

No. of days in year = 360

Interest I = ?

The interest on a given principal amount and rate can be calculated using the formula:

{eq}I = P \times T \times R {/eq}

Substituting the given values, we get:

{eq}I = $100,000 \times \frac{120}{360} \times 0.1\\ I = $3,333.33 {/eq}

Therefore, Carol pays $3,333.33 as interest for 120 days on the loan.


Learn more about this topic:

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How to Calculate Interest Expense: Formula & Example

from Financial Accounting: Help and Review

Chapter 5 / Lesson 18
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