Future Business Leaders of America (FBLA) Business Calculations Practice Test

How much more will Suzanne pay in costs for an 8 7/8 percent ordinary interest loan compared to an exact interest loan over 120 days?

1. $79.16 less

2. $101.31 less

3. $179.40 more

4. $101.31 more

The correct answer is: $101.31 more

To determine how much more Suzanne will pay in costs for an 8 7/8 percent ordinary interest loan compared to an exact interest loan over 120 days, we first need to calculate the interest for both types of loans. Ordinary interest is calculated based on a 360-day year, while exact interest uses a 365-day year. The difference in the calculation of interest between these two methods can lead to different total costs associated with the loans. For the ordinary interest loan: 1. Convert the interest rate into a decimal: 8 7/8 percent is 8.875%, or 0.08875 as a decimal. 2. The formula for calculating interest using ordinary interest is: \[ \text{Interest} = \text{Principal} \times \text{Rate} \times \left(\frac{\text{Time}}{360}\right) \] 3. For a 120-day loan, the time is 120/360, which simplifies to 1/3. For the exact interest loan: 1. Again, use the same interest rate of 0.08875. 2. The formula for calculating interest using exact interest is: \[ \text{