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The annual interest rate is 20%. The balance after the grace period was $15000. A payment of $2500 was made on the 3rd day. What is the interest for the month? a) $300

b) $500
c) $1000
d) $2500

1 Answer

2 votes

Final answer:

The interest for the month calculated on an initial balance of $15,000 with a payment of $2,500 on the third day, and a 20% annual interest rate is approximately $212.48. This is none of the provided multiple-choice answers, indicating that additional information about the bank's interest calculation method might be necessary to select the correct option.

Step-by-step explanation:

The question is asking to calculate the interest for the month given an annual interest rate of 20% on an initial balance of $15,000, after a payment of $2,500 was made on the 3rd day of the month. To solve this, we need to understand how interest is computed on a reducing balance.

Firstly, since there are no details on a daily interest rate or specific information about the grace period's effect, we'll assume that the interest is calculated monthly at the end of the month. Given this, for the first 3 days, the interest is calculated on the initial balance:

($15,000 * 20%) / 12 months = $250 per month

$250 / 30 days = $8.33 per day for the first 3 days

Interest for first 3 days = 3 days * $8.33/day = $24.99

After the payment, the new balance is $15,000 - $2,500 = $12,500. Interest is then calculated on the new balance:

($12,500 * 20%) / 12 months = $208.33 per month

Interest for the remaining 27 days = 27 days * ($208.33 / 30 days) = $187.49

Finally, the total interest for the month is the sum of interest before and after the payment:

Total interest = $24.99 + $187.49 = $212.48

However, the closest answer provided in the question options is $300, but that would be the full interest charge on the initial $15,000 balance without considering the payment. Without more information on how the bank applies payments and calculates interest (e.g., daily balance method or average daily balance method), we can't provide a precise answer based on the provided answers (a) $300, (b) $500, (c) $1000, (d) $2500. Our calculated interest aligns with none of these options.

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