Interest Problems Forward & Backward

Simple interest: Interest = Principal × Rate × Time. Forward: $150,000 at 7% for one month → $150,000 × 0.07 ÷ 12 = $875. Backward — the tested direction: a $875 monthly interest payment at 7% implies a balance of $875 × 12 ÷ 0.07 = $150,000; a $150,000 loan paying $900/month interest-only implies a rate of $900 × 12 ÷ $150,000 = 7.2%. Amortized payments split: month one interest = balance × rate ÷ 12; principal = payment − interest; next month recalculates on the slightly smaller balance. The exam rarely asks more than two months deep — just iterate carefully.