Arithmetic Reasoning
A mechanic borrows $4,000 to purchase shop equipment at an annual simple interest rate of 9%. If the loan is paid off in a single lump sum after 18 months, what is the total amount required to pay off the loan?
- A$5,080
- B$4,360
- C$4,540
- D$540
Not A. $5,080 results from adding the $540 interest twice instead of once.
C is right. $4,540 is correct because 18 months equals 1.5 years, producing interest of $4,000 * 0.09 * 1.5 = $540, which when added to the principal gives a total of $4,540. The distractor $540 represents only the interest accrued without adding the original principal. The distractor $4,360 is incorrect because it calculates interest for only 12 months instead of the full 18 months.