Paul borrowed $2,000 for four months at an annual interest rate of
10.25%. How much must he repay at the end of four months?
a. $689.44
b. $68.33
c. $2,068.33
d. $2,052.50
To solve this problem, we need to use the formula:
Interest = Principal x Rate x Time
where:
- Principal = amount borrowed = $2,000
- Rate = annual interest rate = 10.25% = 0.1025 (in decimal form)
- Time = four months = 4/12 = 1/3 (in years, since the interest rate is given in annual terms)
Now, we can calculate the interest charged on the loan:
Interest = $2,000 x 0.1025 x 1/3
Interest = $68.33
Therefore, the total amount Paul must repay at the end of four months is:
Total repayment = Principal + Interest
Total repayment = $2,000 + $68.33
Total repayment = $2,068.33
So the answer is (c) $2,068.33.