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. mervin needs cash and he needs it now. he goes to advanced financial and takes out a loan of 300.00. advanced financial calls their loans mirco-loans and get to choose their own interest rates. if they set the rate at 70% per year, how much interest will mervin need to pay back in 5 months if interest compounds monthly? how much will he owe in 5 months using approximate equivalent growth?

Answer :

MRROYALGO

Mervin's loan of $300 is an illustration of compound interest

The interest to pay back in 5 months is $74.2, and the amount to pay back in 5 months is $374.2

The interest to pay back in 5 months

The given parameters are:

  • Principal, P =$300.00
  • Rate, r = 70%
  • Time, t = 5 months

The compound interest is calculated as:

CI = P * (1 + r)^(t/12) - P

Substitute known values

CI = 300 * (1 + (0.70))^(5/12) - 300

Evaluate the expression

CI = 74.2

Hence, the interest to pay back in 5 months is $74.2

The amount to pay back in 5 months

The amount (A) is calculated using:

A = CI + P

This gives

A = 74.2 + 300

A = 374.2

Hence, the amount to pay back in 5 months is $374.2

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