Question

Jess took out a short-term loan to pay some vendor invoices that offered them a 2% cash discount. The annual interest rate on their short-term loan is 5%. If they have a total of $4,000 on this short-term loan, what would their monthly interest expense be?

Answer 1

The monthly interest expense for Jess on the short-term loan would be $16.67.

Step-by-step explanation:

The monthly interest expense can be calculated by multiplying the loan amount by the monthly interest rate. In this case, the loan amount is $4,000. To find the monthly interest rate, we need to convert the annual interest rate to a monthly rate by dividing it by 12. So, the monthly interest rate is 5% divided by 12, or 0.4167%.

Now, multiply the loan amount by the monthly interest rate: $4,000 * 0.4167% = $16.67. Therefore, Jess would have a monthly interest expense of $16.67.