A man borrows money for six months at 6% annual interest rate payable in advance.
How much does he have to borrow in order to have 1000 dollars in cash immediately ?
Answers and solution posted below the wildlife photo. Take your time.
A. $1031.915 or $1031.92 rounded
This is similar to a commission problem.
If he needs 1000 dollars right away let's find out what the interest is on 1000 dollars at 6% apr for six months in advance.
100% - 6% = 94% or .94
Divide .94 into 1000 and we get 1063.8297 or 1063.83 rounded.
Subtract 1000 from 1063.83 and we're left with 63.83 annual interest.
Divide 63.83 by 12 months to arrive at 5.3191 or 5.32 rounded.
Multiply 5.32 times six months and we now have $31.92 in interest to be paid in advance which indicates that in order to have 1000 dollars in cash immediately he has to borrow $1031.92 if six months of the interest is paid in advance.
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