Question

Reeves Incorporated is issuing a note payable to four individuals for $5,000 each. Which individual will end up paying the MOST in interest, assuming all individuals pay in full on the maturity date?

A : Individual 4 has an annual interest rate of 3.8% and a maturity date of six months.
B : Individual 1 has an annual interest rate of 3.5% and a maturity date of 60 days.
C : Individual 2 has an annual interest rate of 4.75% and a maturity date of three months.
D : Individual 3 has an annual interest rate of 4.05% and a maturity date of one year.

Answer 1

Answer: The individual 3 will pay more interest amount, with an interest of $202.5. Therefore option D is the correct option.

Explanation: This is calculated using the simple interest formula.

I = P × R × T

I is the interest

P is the principal

R is the rate per year

T is the period of interest

Option A: for individual 4;

I = $5,000 × 0.038 × 6/12 = $95

Option B: for the individual 1;

I = $5,000 × 0.035 × 60/365 = $28.8

Option C: for the individual 2;

I = $5000 × 0.0475 × 3/12 = $59.4

Option D: for individual 3;

I = $5000 × 0.0405 × 1 = $202.5

Therefore, from the calculations above, the individual that will be most in interest is individual 3, because the individual interest amount is more. That means option D is most correct

While individual 1 will pay less is