Chapter 8 Loans
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Example 8-1B
See It
Serafi na received a loan from her bank and signed a promissory note as
shown. Determine the amount of interest that Serafi na will pay based on the
information from her promissory note.
Promissory Note
Serafi na Johanssen borrows from the lender, Coastal Bank, the sum of $6,500 for a
period of one year.
Ms. Johanssen will pay an annual interest rate of 6.75%.
She promises to pay the loan in full, including all applicable interest, at the end
of one year.
Strategy
Use the formula:
I = Prt
Solution
Step 1: Identify the principal and annual interest rate.
principal = $6,500
annual interest rate = 6.75%
Step 2: Convert the annual interest rate to a decimal by moving the decimal two
places to the left.
6.75% → 0.0675
Step 3: Determine the annual interest amount. Multiply the principal by the
annual interest rate.
annual interest amount = principal × annual interest rate
annual interest amount = $6,500 × 0.0675
annual interest amount = $438.75
Check It
Mikhail loaned his nephew money to purchase a used car. Mikhail’s nephew
agreed to pay the sum of $3,300 and 5.35% interest. The full amount is due in
one year. Determine the amount of interest that Mikhail’s nephew will pay based
on the information in the promissory note.