A man borrowed $1,000 on May 1,1999 and agreed to repay the money plus 8% interest in six months. Two months after the money was borrowed, the creditor agreed to settle the debt by discounting it at the simple interest rate of 9%. How much did the creditor receive when he discounted the debt.
To find out how much the creditor received when he discounted the debt, we need to calculate the original amount plus interest and then apply the discount.
First, let's calculate the total amount owed after six months with an 8% interest rate. The formula for calculating simple interest is:
Interest = Principal * Rate * Time
In this case, the principal amount is $1,000, the rate is 8%, and the time is 6 months. Plugging these values into the formula:
Interest = $1,000 * 0.08 * 6 = $480
So, after six months, the total amount owed would be $1,000 + $480 = $1,480.
Now, let's calculate the amount owed after two months with a 9% interest rate. Using the same formula, but with a time of 2 months:
Interest = $1,000 * 0.09 * 2 = $180
Therefore, after two months, the total amount owed is $1,000 + $180 = $1,180.
Finally, to find out how much the creditor received when he discounted the debt, we subtract the discounted amount from the total amount owed after two months.
Discounted Amount = Total Amount Owed - Discount
Discounted Amount = $1,180 - $1,000 = $180
Therefore, the creditor received $180 when he discounted the debt.