Question

Dirk Ward borrowed $11,000.00 for investment purposes on May 11 on a demand note providing for a variable rate of interest and payment of any accrued interest on December 31. He paid $700 on June 11, $150 on September 18 , and $400 on November 19. How much is the accrued interest on December 31 if the rate of interest was 8% on May 11 , 8.4% effective August 1 , and 8.9% effective November 1 ?

Answer 1

To calculate the accrued interest on December 31, we need to determine the interest earned from each payment and sum them up. The interest rate varies throughout the year, so we calculate the interest for each time period separately. The total accrued interest on December 31 is $496.20.

Step-by-step explanation:

To calculate the accrued interest on December 31, we need to determine the interest earned from each payment and sum them up. Since the interest rate varies throughout the year, we need to calculate the interest for each time period separately. Here's the breakdown:

1. From May 11 to June 11 (30 days) at 8%: $11,000 * (8/100) * (30/365) = $72.60
2. From June 11 to September 18 (99 days) at 8.4%: $11,000 * (8.4/100) * (99/365) = $199.51
3. From September 18 to November 19 (62 days) at 8.4%: $11,000 * (8.4/100) * (62/365) = $114.77
4. From November 19 to December 31 (42 days) at 8.9%: $11,000 * (8.9/100) * (42/365) = $109.32

Adding up the interest for each time period gives us: $72.60 + $199.51 + $114.77 + $109.32 = $496.20.

Therefore, the accrued interest on December 31 is $496.20.