Question

Lionel borrows $5,000 using a revolving loan. The interest rate on the loan is prime plus 5%. On March 17th, when the loan is initially taken out, the prime rate is 5%. On April1st, the prime interest rate increases to 6%.On April 17th, Lionel is required to pay back all outstanding interest on the loan. On April 28th, Lionel makes a payment of $2,900 to repay the loan in part. What amount of money would Lionel need to pay on May 13thin order to cover all remaining interest and principal on the loan?

Answer 1

The assumption is that the interest rates are yearly interet rate, 365 days in a year and continous compounding.

On 17th Apr Lionel paid all the outstanding interest, so the amount outstanding as on 17th Apr is $5000.

Based on a interest of 11% (6% prime + 5%), outstanding as on 28th Apr is

As $2900 is paid, the total outstanding is $5016.6 - $2900 = $2116.6

As on 13th May this $2116.6 translates to

So, the total amount that is to be paid to clear remaining principal and interest is $2126.19