Shawn Bixby borrowed $40,000 on a 180-day, 11% note. After 60 days, Shawn paid $

Question

Shawn Bixby borrowed $40,000 on a 180-day, 11% note. After 60 days, Shawn paid $4,300 on the note. On day 94, Shawn paid an additional $6,300. Use ordinary interest.

a.

Determine the total interest use the U.S. Rule. (Do not round intermediate calculations. Round your answer to the nearest cent.)

b.

Determine the ending balance due use the U.S. Rule. (Do not round intermediate calculations.Round your answer to the nearest cent.)

Shawn Bixby borrowed $40,000 on a 180-day, 11% note. After 60 days, Shawn paid $4,300 on the note. On day 94, Shawn paid an additional $6,300. Use ordinary interest.

Explanation / Answer

Solution: Figures in $ Notes: (i) U.S. Rule produces no compounding of interest in that any unpaid accrued interest is accumulated separately and is not added to principal. In addition, under the U.S. Rule, no interest calculation is made until a payment is received. (ii) Assuming 360 days in a year for calculation of interest. (iii) Assumed that payment made during borrowing period is attributed to Principal not to Interest. Day Days for intrest calculation Opening principal outstanding Interest @ 11% Payment Closing principal outstanding Total amount outstanding (principal+interest) 0 0 40000 0 0 40000 40000.00 60 60 40000 733.33 4300.00 35700.00 36433.33 94 34 35700.00 370.88 6300.00 29400.00 30504.22 180 86 29400.00 772.57 0.00 29400.00 31276.78 Total 180 1876.78 Now (a) Total interest = $1876.78 (b) Total ending balance due = $31276.78

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