Example 1: Calculating Interest and Payback Amount

Chipola College

MGF 1107

11.2 Personal Loan and Simple Interest______

Example 1: Calculating Interest and Payback Amount

Toya Brown needs to borrow $1600 to hire Mr. Young to fix her jump shot. From her credit union, she obtains a 9-month loan with an annual simple interest rate of 6.5%.

a) Calculate the simple interest on the loan.

b) Determine the total amount the Toya will pay the credit union at the end of the 9 months.

Example 2: Determining the Annual Rate of Interest

To obtain money for new eyeglasses, Charity Mcghee decides to pawn her Liberal Arts Book.

Charity borrows $240 and after 30 days she gets her book back by paying the pawnbroker $288. What annual rate of interest did Charity pay?

Example 3: Partial Payments

Ken Hurley wishes to purchase a new racing bicycle but does not have the $2000 purchase price. Luckily, the bike shop has two payment options.

Option 1: Ken can pay $1000 as a down payment and then pay $1150 in 6 months.

Option 2: Ken can pay $500 as a down payment and then pay $1700 in 6 months.

Which payment has a higher annual simple interest rate?

The United State Rule

Use the table in section 11.2 for the following problems.

Example 4: Determining the Due Date of a Note

Use Table 11.1 to find (a) the due date of a loan made on March 15 for 120 days and

(b) the number of days from April 18 to July 31.

Example 5: Using the Banker’s Rule

Determine the simple interest that will be paid on a $300 loan at an interest rate of 5% for the period March 3 to May 3 using the Banker’s rule.

Example 6: Using the United States Rule

Joy Ree Ashmore is a mathematics teacher and she plans to attend a national conference. To pay for her airfare, on Nov. 1, 2002, she takes out a 120-day loan for $400 at an interest rate of 12.5%. She uses some birthday gift money to make a partial payment of $150 on January 5, 2003. She makes a second partial payment of $100 on February 2, 2003.

a) Determine the due date of the loan.

b) Determine the interest and the amount credited to the principal on January 5.

c) Determine the interest and the amount credited to the principal on February 2.

d) Determine the amount that Mrs. Ashmore must pay on the due date.