Bashir owes 50000 to Arshad due to a court decision. The money must be paid in 10 months with no interest. Suppose bashir wishes to pay the money now. What amount should Arshad be willing to accept? Assume simple interest of 8% per annum
If Arshad is willing to accept the money now, he should consider the interest that he would have earned if Bashir had paid the money in 10 months.
The simple interest formula is: Interest = Principal * Rate * Time
Principal = $50,000
Rate = 8% per annum = 8/100 = 0.08 (decimal)
Time = 10 months = 10/12 years = 5/6 years
Interest = $50,000 * 0.08 * 5/6 = $3,333.33
Therefore, Arshad should be willing to accept $50,000 + $3,333.33 = $53,333.33