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Suppose you take a margin loan for 77000. You pay a 7.0 percent effective rate. If you repay the...

Question:

Suppose you take a margin loan for {eq}77000 {/eq}. You pay a {eq}7.0 {/eq} percent effective rate. If you repay the loan in three months, how much interest will you pay?

Margin Loan:

The margin loan is usually undertaken for a short term period. It can be undertaken to bridge the mismatch between payables and receivables or even taken for an investment in financial assets.

Answer and Explanation:


The interest shall be $1,347.50


The simple loan formula shall apply:

Interest = Principal * Rate * Time

  • Principal = $77,000
  • Rate = 7.00%
  • Time = 3 / 12

Interest = $77,000 * 7.00% * 3 / 12
=$1,347.50


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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