Question

If a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 7.3% is $877, how much was the loan amount (rounded to the nearest hundred)?A. $120,100B. $100,300C. $144,200D. $134,200

Answer 1

Answer:

C. $144,200

Step-by-step explanation:

We have been given that a borrower's monthly interest payment on an interest-only loan at an annual interest rate of 7.3% is $877.

To find the loan amount, we will use simple interest formula.

$I=Prt$, where,

I = Amount of interest,

P = Principal amount,

r = Annual interest rate in decimal form,

t = Time in years.

One month will be equal to 1/12 year.

$7.3\%=\frac{7.3}{100}=0.073$

Upon substituting our given values in simple interest formula, we will get:

$877=P*0.073*\frac{1}{12}$

$877*12=P*0.073*\frac{1}{12}*12$

$10524=P*0.073$

$P*0.073=10524$

$\frac{P*0.073}{0.073}=\frac{10524}{0.073}$

$P=144164.3835616438356$

Upon rounding to nearest hundred, we will get:

$P\approx 144,200$

Therefore, the loan amount was $144,200 and option C is the correct choice.