Mel took out a loan of $40,000 at 14 percent on March 16, 2007 which is due on January 15, 2008. Using exact interest, the amount of Mel's interest cost is:
I = 40,000 * 0.14 * 0.8384
I = ?
March = 15 days
April = 30
May = 31
June = 30
July = 31
August = 31
September = 30
October = 31
November = 30
December = 31
January = 15
Total days = 306 days. Check my addition.
306/365 = 0.8384
To calculate the interest cost for Mel's loan, we need to use the formula: Interest = Principal x Rate x Time.
First, let's calculate the time in years. The loan was taken out on March 16, 2007, and it is due on January 15, 2008.
To find the time in years, we need to divide the number of days by the total number of days in a year (365).
Number of days from March 16, 2007, to January 15, 2008, can be calculated as follows:
Total days in 2007 (March 16, 2007, to December 31, 2007) = (31 + 30 + 31 + 30 + 31 + 31 + 30 + 31 + 30 + 31 + 15) = 316 days
Total days in January 2008 (1 to 15) = 15 days
Total days = 316 + 15 = 331 days.
Now, we convert the total days to years:
Time = 331 days / 365 days/year = 0.9068 years (rounded to four decimal places).
Next, we calculate the interest cost:
Principal = $40,000
Rate = 14% or 0.14 (since rate is expressed as a decimal)
Using the formula: Interest = Principal x Rate x Time
Interest = $40,000 x 0.14 x 0.9068
Interest ≈ $4,038.40
So, the amount of Mel's interest cost is approximately $4,038.40.