Question

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.

1. 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?

Answer 1

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