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Time Value of Money – 1 month










































Johan has given the option to settle his RM 5000 bill now or settling it for RM5087.50 after a month. If he chooses to pay after a month, compute the simple interest rate (per year) at which he would be charged.

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Oct 07, 2012
Time Value of Money
by: Staff


Answer:



F = C*(1 + r)

F = Final balance owed in 1 month
C = Current balance owed
r = decimal form of monthly interest rate

F = RM5087.50
C = RM5000
r = unknown


F = C*(1 + r)

5087.50 = 5000*(1 + r)

5087.50 / 5000 = 5000*(1 + r) / 5000

5087.50 / 5000 = (1 + r) * (5000 / 5000)

5087.50 / 5000 = (1 + r) * (1)

5087.50 / 5000 = (1 + r)

(1 + r) = 5087.50 / 5000

(1 + r) = 1.0175

1 + r - 1 = 1.0175 - 1

1 - 1 + r = 1.0175 – 1

0 + r = 1.0175 - 1

r = 1.0175 - 1

r = 0.0175

interest rate (per year) = 12 * 0.0175

interest rate (per year) = 0.21

simple interest rate (per year) = 21%


The final answer is: simple interest rate (per year) = 21%


Thanks for writing.

Staff
www.solving-math-problems.com



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