Section 8.1 Loans and Interest
269
Strategy
Use the formulas:
term =
number of days of the loan
360
I = Prt
Solution
Step 1: Determine the number of days of the loan. Multiply the number of
months by 30 days per month.
number of days of the loan = number of months × number of days per month
number of days of the loan = 6 × 30
number of days of the loan = 180
Step 2: Convert the annual interest rate to a decimal by moving the decimal two
places to the left.
6.5% → 0.065
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 =
180
360
Step 4: Convert the fraction to a decimal. Divide the numerator by the
denominator.
term = 180 ÷ 360 = 0.5
Step 5: Determine the amount of interest. Multiply the principal, annual interest
rate, and term of the loan.
amount of interest = principal × annual interest rate × term
amount of interest = $1,500 × 0.065 × 0.5
amount of interest = $48.75
Step 6: Determine the total amount of money that Shania will pay back. Add the
principal and amount of interest.
total amount of money paid = principal + amount of interest
total amount of money paid = $1,500 + $48.75
total amount of money paid = $1,548.75
Check It
Kameron has agreed to borrow $2,200 from his parents using the ordinary
interest method. He will borrow the money for nine months. The annual interest
rate is 5.85%. Calculate the total amount of money that Kameron will pay back at
the end of the nine-month loan period.
fyi
When using the ordinary
interest method, you may
choose to write the term
of the loan as a fraction or
as a decimal, whichever
makes the arithmetic
easier.