Question

Suppose you purchased $5,000 worth of furniture and paid back only $3,500 before the 90-day deadline. If you are charged 18% simple interest, how much will you owe on day 91 if you plan to pay off loan in full on that day? Show your work!

Answer 1

Calculate the total amount to be paid as follows:

Total amount = Cost of furniture + Interest for 90 days

= $5000 + ($5,000*18%*90/365)

= $5000 + $222

= $5,222.

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Calculate the amount owed at 91th day as follows:

Amount owed = Total amount - paid amount

= $5,222 - $3,500

= $1,722.

Therefore, the amount owed is $1,722.

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Alternative solution if it is taken in months

Calculate the total amount to be paid as follows:

Total amount = Cost of furniture + Interest for 3months(90 days =3months)

= $5000 + ($5,000*18%*3/12)

= $5000 + $225

= $5,225.

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Calculate the amount owed at 91th day as follows:

Amount owed = Total amount - paid amount

= $5,225 - $3,500

= $1,725.

Therefore, the amount owed is $1,725.