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Nellie has a bankruptcy on her credit report and therefore pays higher interest rates on her current loans. She calculates that the extra money she pays in additional interest each year, if invested at the rate of 3% for 5 years, could earn her simple interest totaling $114. Approximately how much does Nellie pay in additional interest each year? a. $171 b. $190 c. $342 d. $760.

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chilljain33

The correct statement is that Nellie pays an additional interest of $760 each year as a result of bankruptcy in credit report. So, the correct option that matches the quoted statement is D.

The calculation of simple interest for each of the options as under A, B, C and D can be done to obtain that Nellie earns a simple interest of 3% on such additional amount paid annually.

Calculation of interest.

  • The formula for calculation of Simple Interest is as,

  • [tex]\rm Simple Interest = \dfrac{Principal\ x\ Interest\ x\ Period}{100}[/tex]

  • Using the formula above, the simple interest on principal of $171, $190 and $342 is calculated as $25.65, $28.5 and $51.3 respectively.

  • Now calculating the simple interest on the additional amount of $760 and taking it as principal, we get,

  • [tex]\rm Simple\ Interest = \dfrac{760\ x\ 3\ x\ 5}{100}\\\\\\\rm Simple\ Interest = \dfrac{11400}{100}\\\\\rm Simple\ Interest = \$114[/tex]

  • The amount of simple interest to be earned on such additional amount matches with the information given.

Hence, the correct option is D that Nellie pays an additional interest of $760 on her loan due to bankruptcy in her credit report and could earn 114 USD simple interest in five years over such additional interest borne.

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