On January 3, 2016. HNL negotiated a short-term loan of $685,000. The loan was due October 1 2016, and carried a 6.86% interest rate.
a. What is the total amount HNL paid on the maturity date? Use ordinary interest to calculate the interest. Show your work in the space provided.
b. In a few complete sentences, explain how you calculated the answer.
Answer (a):
Date of borrowing = January 6, 2016
Maturity date = October 1, 2016.
Duration of short term loan = Maturity date - Date of borrowing = 272 days.
Interest on short term loan = 685000 * 6.86% * 272/365 = $35017.95
Total amount HNL paid on maturity = Principal + Maturity = 685000 + 35017.95 = $720,017.95
Total amount HNL paid on maturity = $720,017.95
Answer (b):
Calculate the number of days the short term loan is outstanding. Calculate interest payable based on interest rate agreed, principal amount and number of days the loan is outstanding. Calculate total amount payable by adding interest payable to loan amount.
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