Friday, November 26, 2010

Compute the principal for the loan. Use ordinary interest when time is stated in days. Rate =9% Time= 6months Interest=$675

Find the
principal (original) amount if $675
"ordinary" interest accrues after 6 months.

Depending on
your definition of "ordinary" interest as being
simple interest:


P = ? (the unknown)

rate (`r` ) = 0.09
(or
`9/100` ) /

time period (`t` )= 6 months which is 0.5 of a
year
/

interest accrued (`I` ) = $675


We know that `I = P times
r times t`

Substitute
what you know into the formula:


$675 = `P` `times 0.09
times 0.5`

Now solve for `P`


`675 =
P times 0.045 `

`therefore 675/0.045 = P`



`therefore P = $15000`

There is
another
definition of "ordinary" interest being based on a 30-day month (=
360 days in a
year), in which case a standard 6 months (ie of 365 days)
becomes 0.50694 of a year of 360 days
instead of 0.5 of a standard year.

Answer based on a standard calculation of
simple interest
= `$15000`

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