Chapter 8 Loans
268
Solution
Step 1: Determine the number of days of the loan. Multiply the number of
months by 30 days.
number of days of the loan = number of months × number of days per month
number of days of the loan = 7 × 30
number of days of the loan = 210
Step 2: Convert the annual interest rate to a decimal by moving the decimal two
places to the left.
4.5% → 0.045
Step 3: Determine the term of the loan. Divide the number of days of the loan
by 360.
term =
number of days of the loan
360
term =
210
360
Step 4: Convert the fraction to a decimal. Divide the numerator by the
denominator.
term = 210 ÷360 ≈ 0.5833
Step 5: Determine the amount of interest. Multiply the principal, annual interest
rate, and term of the loan. Round to the nearest cent ($0.01) if necessary.
amount of interest = principal × rate × term
amount of interest = $1,750 × 0.045 × 0.5833
amount of interest = $45.93
Check It
Aadi borrowed $850 using the ordinary interest method. He agreed to pay
an annual interest rate of 6.25%. He will repay the loan in eight months. Calculate
the amount of interest that Aadi will pay.
Example 8-1D
See It
Shania has agreed to borrow money from her aunt using the ordinary
interest method. She wants to borrow $1,500 for six months at an annual interest
rate of 6.5%. Determine the total amount of money that Shania will need to pay
back at the end of the six-month loan period.
fyi
The top number
in a fraction is the
numerator, and the
bottom number
in a fraction is the
denominator.