This assignment focuses on calculating simple interest, covering various scenarios such as loan calculations and interest rates. It includes problems involving a 13% interest rate on a $15,000 loan for different time frames, utilizing both 360-day and 365-day year calculations. Students will also explore practical applications, such as managing checking account balances and early loan repayments. This resource is ideal for finance students and anyone looking to understand basic interest calculations.

Key Points

  • Calculates interest for a $15,000 loan at 13% for 90 days using both 360-day and 365-day year methods.
  • Explores practical scenarios like checking account interest and monthly fees.
  • Includes problems on early loan repayment and interest owed.
  • Offers step-by-step solutions for each assignment question.
Camille Langlois
2 pages
Language:English
Type:Assignment
Accounting
Camille Langlois
2 pages
Language:English
Type:Assignment
Accounting
176
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Assignment # 02. “Simple Interest”
✓ Assignment may be solved handwritten & submitted.
✓ Single file submission allowed. Merge all pages into single file & upload on Moodle.
✓ Proper stepwise workings may be shown for each question as how the answers are
being obtained.
For Problems 16 and 17, we will calculate interest on a 13% 90-day $15,000 loan.
16. Calculate interest, assuming the lender uses a 360-day year.
17. Calculate interest, assuming the lender uses a 365-day year.
Solving for principal, rate, and time
For problems in this unit, if the answer is a percent, express the answer to the nearest hundredth
of a percent.
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5
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23-26
The interest rate is 11.5%.
27. You open a checking account. You are paid 3% interest on the average balance but are charged
a $7 monthly charge. Assuming that interest is paid monthly (regardless of the number of days in
the month), calculate the average daily balance you must maintain to offset the $7 monthly charge.
28. You decide to pay off a 9% $3,000 loan early. The bank tells you that you owe $111.70 interest.
Assuming that the bank uses a 365-day year, for how many days are you being charged interest?
29. You borrow $200 from your aunt and agree to repay her $225 ($200 principal + $25 interest)
in 18 months. What interest rate are you paying?
31. You are starting your own small business in Albuquerque. You borrow $10,000 from the bank
at a 9% rate for 5 years. Find the interest you will pay on this loan.
**************** Best of Luck **************
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FAQs

How is simple interest calculated for loans?
Simple interest is calculated using the formula I = PRT, where I is the interest, P is the principal amount, R is the rate of interest per year, and T is the time in years. For example, if you have a $15,000 loan at a 13% interest rate for 90 days, you would convert the time into years (90/360 or 90/365) and apply the formula to find the interest owed. This method is straightforward and commonly used in financial calculations.

What is the difference between using a 360-day year and a 365-day year in interest calculations?
Using a 360-day year simplifies calculations by assuming each month has 30 days, which can lead to slightly higher interest amounts compared to a 365-day year, which accounts for the actual number of days in a year. This difference can be significant for short-term loans, as it affects the total interest paid. Understanding this distinction is crucial for accurate financial planning and loan management.

How can I offset monthly charges on a checking account?
To offset a monthly charge, such as a $7 fee, you need to maintain an average daily balance that earns enough interest to cover the charge. If your account earns 3% interest annually, you can calculate the required balance by using the formula for monthly interest. This involves determining how much interest you need to earn in a month to equal $7, and then calculating the necessary average balance to achieve that interest.

What factors should I consider when paying off a loan early?
When considering early loan repayment, it's important to understand any prepayment penalties, the interest savings from paying off the loan early, and how it affects your credit score. Additionally, you should calculate the total interest you would save by paying off the loan early versus keeping the loan for its full term. This analysis helps in making informed financial decisions.