question archive Simpson Conglomerates borrows $12,000 for a short-term purpose

Simpson Conglomerates borrows $12,000 for a short-term purpose

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Simpson Conglomerates borrows $12,000 for a short-term purpose. The loan will be repaid after 120 days, with Simpson paying a total of $12,400. What is the approximate cost of credit using the APY, or annual percentage rate, calculation?

A. 4.33%

B. 10.34%

C. 12.25%

D. 12.46%

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Answer:

Interest Paid = 12400-12000 i.e 400

Cost of capital for 120 days = 400/12000 i.e 3.33%

Annual percentage rate = 3.33%*365/120 i.e 10.34%

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