Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 24

simple interest and maturity value to the nearest cent. (See Examples.)
Finding Simple Interest

To start her business, Jessica Hernandez needs to borrow $85,000 for 9 months. Her bank would not lend her the money since she has no experience or assets. She found an individual who would lend her the money at 18.5%. However, her uncle agreed to cosign on a loan for her, meaning that he would have to pay the loan if Jessica failed to do so. On this basis, the bank would lend the money at 10% simple interest. Find the interest at ( a ) 18.5% and ( b ) 10%. ( c ) Then find the amount saved using the lower interest rate.
CASE IN POINT
SOLUTION
(a) First, convert 18.5% to.185 and 9 months to
year. Then substitute values into I = PRT to find the interest. The principal ( P ) is the amount of the loan.
(b)

(c) Difference = $11,793.75 ? $6375 = $5418.75
Hernandez quickly learned an important lesson: Interest costs can be very high. She was delighted that her uncle had agreed to cosign for her. It saved her nearly $5500 in interest charges in only 9 months. Now she had to figure out how to make her business profitable!
The calculator solution for part (a) follows:

Note: Refer to Appendix B for calculator basics.
Finding Maturity Value
Tom Swift needs to borrow $28,300 to remodel his bookstore so that he can serve coffee to customers as they browse or sit and read. He borrows the funds for 10 months at an interest rate of 9.25%. Find the interest due on the loan and the maturity value at the end of 10 months.
SOLTUTION
Interest due is found using I = PRT , where T must be in years (10 months =
year).