Question

In: Finance

Charlie Dew purchased a new personal watercraft on October 24, 2020 from the local marina for...

Charlie Dew purchased a new personal watercraft on October 24, 2020 from the local marina for a cost of $5000. He was sent an invoice with the following terms: 2% discount if paid in full by November 24, 2020, otherwise the full amount is due by February 24, 2021.

Suppose Charlie can find a lender who will lend him the money he needs on November 24 at the following simple interest rates: 6% for the first 20 days, 7% for the next 20 days, 8% thereafter. How much money does Charlie have to pay back to the lender on February 24, 2021? How much money does Charlie save by borrowing from this lender?

Expert Solution

amount of interest paid to lender

the total number of days for which the loan is taken is 92 days , i.e. from 24/11/20 to 24/2/21

interest amount = loan amount X interest rate X No. of days / 365

( Note -365 days in a year taken)

Based on the above formula, interest is calculated as

excel formula

so the amount to pay back to lender is principal + interest

= 5000 + 92.60

= $5,092.6

money gained by borrowing = discount earned by early payment - interest on loan

= ( 5000 X 2%) - 92.60

= 100 -92.60

=$ 7.40

jeff jeffy answered 2 years ago

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