On January 5, Ebony Davis borrowed $6,500 on a simple interest loan from a lending institution to finance her catering business. She borrows the money at a rate of 8.5% with a term ending on December 9.

Question

a. Calculate Ebony's interest on the simple interest loan if she waits until the full term to pay back the loan.
b. If Ebony makes payments of $1500 on May 3 and $2500 on September 11,
how much will she have left to pay on December 9?
c. How much money does she save by making the payments instead of waiting to the end to repay the loan?

Answer 1

Jan. 5th through Dec. 9th = 338 Days.

a. I = Po*r*t = 6500*(0.085/360)*338 =
$518.74

b. P=(6500 + 6500*(0.085/360)*118)-1500
= $6681.10 - 1500 = $5181.10 After May 3.

P = 5181.10 + 5181.10*(0.085/360)*128 -
2500 = 5337.68 - 2500 = $2837.68 After
Sept. 11

P = 2837.68 + 2837.68*(0.085/360)*89 =
$2897.32 Due on Dec. 9.

c. Total Paid = 1500 + 2500 + 2897.32 =
$6897.32

I = 6897.32 - 6500 = $397.32

518.74 - 397.32 = $121.42 = Amt. saved.

Answer 2

Thanks Henry!