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.

Comments for Time Value of Money – 1 month

 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