Question

In: Finance

. LO❸ Mel’s Photography borrowed $15 000 on March 10 on a demand note. The loan...

. LO❸ Mel’s Photography borrowed $15 000 on March 10 on a demand note. The loan was repaid by payments of $4000 on June 20, $3000 on September 1, and the balance on November 15. Interest, calculated on the daily balance and charged to Mel’s Photography current account on the last day of each month, was at 5.5% on March 10 but was changed to 6.25% effective June 1 and to 6% effective October 1. How much did the loan cost?

Expert Solution

Calculation of Interest Expenses :

1) From 10 March to June 20
Principal Outstanding $15000

Interest Rate was 5.5% on March 10

Interest for the period 10th March to 31 May

No of Days = 21+30+31 = 82

= 15000*5.5%*82/365 = $185.34

Effective Interest Rate w.e.f 1 June is 6.25%

Interest for the period 1st June to 20th June i.e 20 days

=15000*6.25%*20/365

=$51.37

On June 20 $4000 was repaid. Net Loan principal outstanding = 15000-4000 = $11000

Interest for the period June 21 to 1 September i,e 73 days = 11000 * 6.25% * 73/365 = $137.5

On September 1 $3000 was repaid. Net Loan principal outstanding = 11000-3000 = $8000

Interest for the period September 2 to September 30 i,e 29 days = 8000 * 6.25% * 29/365 = $39.73

Effective Interest Rate w.e.f 1 October is 6%

Interest for the period October 1 to November 15 i,e 46 days = 8000 * 6% * 46/365 = $60.49

Total Interest Expense = $185.34 + $51.37 + $137.5 + $39.73 + $60.49 = $ 474.43

jeff jeffy answered 3 months ago

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