Question

Billy Thornton borrowed $150,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month. The bank uses a 360-day year.
How much interest would Billy have to pay in a 30-day month?
Select the correct answer.
a. $904.75
b. $907.75
c. $903.25
d. $909.25
e. $906.25

Answer 1

Option e

The interest Billy has to pay in a 30 day month is $ 906.25

Solution:

Given, Billy Thornton borrowed $150,000 at a rate of 7.25%, simple interest, with interest paid at the end of each month.  

The bank uses a 360-day year.  

The simple interest is given as:

$\text { Simple interest }=\frac{\text { amount } \times \text {rate} \times \text {time}}{100}$

Where amount is principal amount,

rate is interest rate % per year

time is number of years  

Here in our problem, amount = $150000

$\text { rate } \%=7.25 \% \text { per year }=\frac{7.25}{360 \text { days }} \text { per day }$

We need to calculate for 30 day month

Time = 30 days

Plugging the values in formula, we get,

$\begin{array}{l}{\text { simple interest }=\frac{150000 \times \frac{7.25}{360} \times 30}{100}} \\\\ {=1500 \times \frac{7.25}{12}=906.25}\end{array}$

Hence interest to be paid in a 30 day month is $ 906.25. Thus Option e is correct

Answer 2

E: $906.25
$150,000 * 0.725= 108750 (to find the total amount billy has to pay over the year)
108750/12= 9062.5