Question

Your business signs a ninety-day promissory note for $5,000 at 5% monthly interest. How much interest will you have to pay on a collect basis?

Answer 1

To calculate the interest on a promissory note, you can use the formula for simple interest:

\[
\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}
\]

Where:
- Principal (amount borrowed) = $5,000
- Rate (monthly interest rate) = 5% = 0.05
- Time (duration in months) = 90 days = 3 months

Now substituting these values into the formula:

\[
\text{Interest} = 5000 \times 0.05 \times 3
\]

Calculating it step by step:

1. Calculate \( 5000 \times 0.05 \):

\[
5000 \times 0.05 = 250
\]

2. Then multiply by 3:

\[
250 \times 3 = 750
\]

So, the total interest you will have to pay on a collect basis is **$750**.