Question

Suppose you take out a margin loan for $70,000. You pay an effective rate of 6.3 percent. If you repay the loan in two months, how much interest will you pay? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

I will pay $537.43 as interest.

Explanation:

Principal amount = F = $70,000

Effective rate = 6.3% / 12 = 0.525% monthly

t = 2 months

Interest Amount for 2 months = [2x (r x F) / 1 − ( 1 + r )^−t] = [2 x (0.525% x 70,000) / 1 - ( 1 + 0.525%)^-2 = $735 / 0.01042 = $70537.43

Interest Amount = $70537.43 - 70,000 = $537.43

Interest payment of two month margin loan for amount $70,000 at effective rate 6.3% is $537.43.