A borrower receives P1,842 from a bank with a promise to repay P2,000 after 10 months. Determine the simple interest rate applied ?
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Answer: D. 10.29 %
Explanation
Simple interest is calculated using the principal, the interest earned, and the fractional year elapsed. Dividing the earned interest by the product of the principal and time fraction yields the interest rate. Mathematical execution of this simple interest formula confirms ten point twenty nine percent as accurate. Simple interest accumulates only on the original principal amount without compounding over time. The time fraction is determined by dividing the elapsed months by a standard annual period. Rearranging the basic interest formula allows financial analysts to solve for an unknown interest rate.
Short term personal loans and informal credit arrangements frequently utilize simple interest calculations. Borrowers examine simple interest rates to determine the straightforward cost of borrowing funds. Financial literacy programs emphasize simple interest computations as foundational money management skills. Option A overstates the simple interest rate due to an error in the time fraction denominator. Option B represents a higher percentage resulting from miscalculating the interest earned amount. Option C underestimates the interest rate by incorrectly applying a compound growth formula instead.
- Subject
- Engineering
- Category
- Civil Engineering
- Topic
- —
- Difficulty
- medium
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