Question

You are the night auditor at the Werewolf Resort. When there is a shining full moon, you all of a sudden remember that you boss had asked you to calculate the interest of an interest-bearing note of $5,000, which should be repaid in 90 days from now (interest = 5%). A year is considered having 360 days. Based on this information you calculate that the interest is equal to:

Answer 1

The total interest on a $5,000 note at a 5% annual interest rate for 90 days is calculated using the formula Interest = Principal × rate × time, resulting in an interest amount of $62.50.

Step-by-step explanation:

To calculate the simple interest on a $5,000 interest-bearing note with a 5% annual interest rate for 90 days, we'll use the formula Interest = Principal × rate × time. A year has 360 days, so the time in years for 90 days is 90/360, which simplifies to 1/4 or 0.25 years. Hence, the interest can be calculated as follows:

Interest = $5,000 × 5% × 0.25

To compute this, we first convert the percentage into a decimal by dividing it by 100, so 5% becomes 0.05, and then we multiply the principal amount by this interest rate and the time period:

Interest = $5,000 × 0.05 × 0.25

Interest = $62.50

Therefore, the total interest due on the note after 90 days is $62.50.