Question

The opening balance of Company A is 25,000, and the repayment is scheduled for 1,000 per month at an annual interest rate of 5%. Use the average debt balance to calculate the interest payment. The closing balance of debt at the end of the month is _____ and the interest payment is _____.

a) 24,000; 102
b) 24,000; 104
c) 23,896; 104
d) 23,898; 102

Answer 1

a) 24,000; 102

Step-by-step explanation:

Since the opening balance is $25,000 and the repayment is scheduled for $1,000 per month at an annual interest rate of 5%, the closing balance for the month will be $24,000 ($25,000 - $1,000) after paying the first installment.

The computation of Interest as per average debt balance is as follows:

Interest Amount = Average Debt * 0.05/12

Interest Amount = [($25000 + $24000)/2]*0.05/12

Interest Amount = $102.08

The closing balance of debt at the end of the month is $24,000 and the interest payment is $102.08.