2 years from now Mona has to pay Louis 15000 pounds. She decides to pay him back earlier

Question

If a simple interest rate of 12.5% per year is applicable, then the amount that Mona will have to pay Louis 9 months from now equals?  The options are:

1. 12656.25

2. 12972.97

3. 13125

4. 13664.28

5. 13714.29

Answer 1

12.5% over 12 months is 9/12*12.5%=9.375% over 9 months. Apply this reduced amount to £15000=15000*9.375/100=£1406.25 interest, added to the original capital is £16406.25.

Comments

Rod your answer does not agree with one of the given options

Answer 2

In view of the comment I've reread the question to find an alternative interpretation. The one I've come up with is that £15000 represents the principal P with 24 months' interest added. At 12.5% this amounts to 25% over 2 years, so £15000 represents 1.25 times the original principal, and P=15000/1.25=£12000. If this amount is to be paid in 9 months' time then the interest to be added is 3/4*12.5/100*12000=£1125. Add this to P=£13125 (answer 3).