Question

Lauren used their line of credit to pay some vendor invoices that offered them a 2% cash discount. The annual interest rate on their line of credit is 9%. If they used $10,000 of their line of credit to pay the vendor invoices, how much interest would they pay on their line of credit, if they repaid the balance in one month?

Answer 1

Lauren will pay $75 in interest for using $10,000 from their line of credit at an annual interest rate of 9% if they repay the balance in one month.

Step-by-step explanation:

If Lauren used $10,000 from their line of credit to pay vendor invoices and took advantage of a 2% cash discount, the focus of the calculation now turns to the interest that would accrue for using the line of credit. Given that the annual interest rate on the line of credit is 9%, we need to calculate how much interest would accumulate over the course of one month if they repaid the balance in full at the end of that month.

To calculate the interest for one month, we can use the formula for simple interest: Interest = Principal × Rate × Time. However, since the rate is given annually, we need to convert it to a monthly rate by dividing by 12 (the number of months in a year). Therefore, the calculation will be: Interest = $10,000 × (9% / 12) × 1 month = $10,000 × 0.0075 × 1 = $75.

So, if Lauren repays the $10,000 balance in one month, they will pay $75 in interest for the use of the line of credit for that month.