On the June 12 interest payment date, the outstanding balance on Delta Nurseries’ revolving loan was $65,000. The floating interest rate on the loan stood at 9.25% on June 12, but rose to 9.5% on July 3, and to 10% in July 29. If Delta made principal payments of $10,000 on June 30 and July 31, what were the interest charges to its bank account on July 12 and August 12?
Present a repayment schedule supporting the calculations.
To calculate the interest charges on July 12 and August 12, we need to determine the outstanding balance on those dates and then calculate the interest charges based on that balance and the respective interest rates.
To create a repayment schedule, we will start with the outstanding balance on June 12, which is $65,000. Then we need to factor in the principal payments made on June 30 and July 31.
Repayment Schedule:
1. Outstanding balance on June 12: $65,000
2. Principal payment on June 30: -$10,000
New outstanding balance on June 30: $65,000 - $10,000 = $55,000
3. Principal payment on July 31: -$10,000
New outstanding balance on July 31: $55,000 - $10,000 = $45,000
Now, let's calculate the interest charges on July 12 and August 12.
July 12:
The outstanding balance on July 12 is $45,000. The interest rate on that date is 9.5%.
Interest charges on July 12: $45,000 * 9.5% = $4,275
August 12:
The outstanding balance on August 12 is $45,000. The interest rate on that date is 10%.
Interest charges on August 12: $45,000 * 10% = $4,500
Therefore, the interest charges on Delta Nurseries' bank account on July 12 would be $4,275, and on August 12, it would be $4,500.
To calculate the interest charges on July 12 and August 12, we need to calculate the interest for each period in the repayment schedule. Let's break it down step by step.
1. Calculate the interest for each period:
a. June 12 to June 30: 0.0625 (18 days)
b. July 1 to July 31: 0.1667 (31 days)
c. August 1 to August 12: 0.0417 (12 days)
2. Calculate the interest charges for each period using the outstanding balance on the respective dates:
a. June 12 to June 30: $65,000 x 0.0925 x 0.0625 = $372.40
b. July 1 to July 31: ($65,000 - $10,000) x 0.095 x 0.1667 = $909.13
c. August 1 to August 12: ($65,000 - $10,000 - $10,000) x 0.1 x 0.0417 = $143.84
3. Create a repayment schedule:
| Date | Payment | Outstanding Balance | Interest | Principal Payment | New Balance |
|----------|----------|---------------------|----------------|------------------|-----------------|
| June 12 | - | $65,000 | - | - | - |
| June 30 | - | - | $372.40 | - | - |
| June 30 | $10,000 | - | - | $10,000 | $55,000 |
| July 12 | - | - | $372.40 | - | - |
| July 31 | - | - | $909.13 | - | - |
| July 31 | $10,000 | - | - | $10,000 | $45,000 |
| August 12| - | - | $143.84 | - | - |
4. Calculate the total interest charges for each period:
a. July 12: $372.40
b. August 12: $143.84
Therefore, the interest charges to Delta Nurseries' bank account on July 12 were $372.40, and on August 12 were $143.84.