The annual interest rate of paul's savings account is 7.2%,and simple interest is calculated monthly. what is the periodic interest rate of paul's account? a. 0.9% b. 0.6% c. 0.4% d. 1.8%

ANSWER: Option B) 0.6%

EXPLANATION: The Periodic Interest Rate is the interest rate charged on a loan over a specific period of time. Frequently, the banks or lenders quote annual interest rate but charge the interest on a periodic basis. So, the periodic interest rate is the annual interest rate divided by the number of compounding periods.

For Paul, the annual interest rate is 7.2% which is calculated every month i.e. 12 months,

So, 7.2% ÷ 12 months = 0.6%

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month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23