ACCOUNTING 1/2 HELP!

[Nequam]

Hey, so I have my first SAC for Accounting this week and feel really confident except for this one question.

''Renae has decided to borrow $24000 to purchase a new vehicle. After investigating the loan options she has settled on the following alternatives:
a. Builders Credit Union - 12% simple interest
b. IOOF Friendly Society - 16% reducing half yearly.
Renae anticipates repaying the loan in equal monthly instalments over two years.

Caluclate the total interest charged on the loan from Builders credit union.

Calculate the total interest charge on the loan from IOOF Friendly society.''

If someone could please walk me through the steps to be able to complete these calculations ASAP as my SAC is this week. Thanks 

[whitehouse_01]

The formula to calculate simple interest is:

PxIxT

Where
 P = principle (the original ampunt borrowed)
I = interest rate (%)
T = time (measured in years)

Therefore the builders credit union would be:
PxIxT
$24,000x12%x2 = 5760

So Renae would owe $5760 interest PLUS the principle of $24,000 = $29,760

But since your question is only asking for the amount of interest charged, the answer would be $5760

--------

b) the method of calculating reducing half yearly is:

.                 P.                     
 Total number of instalments

So in your case it would be

24,000 / (12x2)
=
24,000 / 24
=
1000
(This is the total number of principle instalments per month)

Year 1: 24,000 x 12% x 0.5 = 1440 (this is the first half of the year)
Year 1: 23,000 ( we got this by deducting the $1000 we calculated above) x .12 x .5 = 1380 (this is interest paid on the second half of the year)
Year 2: 22,000 x .12 x .5 = 1320
Year 2: 21,000 x .12 x .5 = 1260

Now add up all the calculations after each half year
1440 + 1380 + 1320 + 1260 = $5400 ( this is the total interest charged over the two years)


Therefore the loan from IOOF friendly society would be a better option as this has a cheaper total interest charge.


I hope this makes some sense, it is difficult to explain things like this over the internet.

Good luck!!