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.