Simon needs 10 000 pounds. The bank agrees to give him this amount now,to be paid back in 7 months from now based on a bank simple discount rate of 16.4%

Question

The amount that he will have to pay back equals:

1. 9043.33

2. 10956.67

3. 10996.80

4. 11057.87

5. 12000

Answer 1

The interest rate needs to be reduced prorata to 7 months, so the effective interest rate is 7/12 of 16.4%. The actual interest over 7 months is therefore 10000*7/12*16.4/100=£956.67 (answer 2).