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Law 531 Week 3 Question Paper

Satisfactory Essays
QUESTION 9
Rose paid 8% interest on a $12,500 loan balance. Lily paid $5,000 interest on a $62,500 loan. Based on one year:
(a) What was the amount of interest paid by Rose?
P = $12,500, R = 8%, T = 1 year
I = P × R × T
I = $12,500 × 0.08 × 1 = $1,000
(b) What was the interest rate paid by Lily?
P = $62,500, R = ?, T = 1 year, I = $5,000
R = I ÷ (P × T)
R = $5,000 ÷ ($62,500 × 1)
R = 0.08 @ 8%
(c) Rose and Lily are both in the 28% tax bracket. Since the interest is tax deductible, calculate the tax savings for each of them.
Rose = 0.28 × $12500 = $3500
Tax saving Rose: $3500-$1000= $2500
Lily = 0.28 × $62500 = $17500
Tax saving Lily: $17500-$5000= $12500
(d) Give an example of each exact and ordinary interest.
a) Ordinary
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