Question

One of your customers is delinquent on his accounts payable balance. You’ve mutually agreed to a repayment schedule of $500 per month. You will charge 1.25 percent per month interest on the overdue balance.If the current balance is $11,500, how long will it take for the account to be paid off

Answer 1

27months

Step-by-step explanation:

Answer 2

27.29 months

Step-by-step explanation:

Using Present Value Annuity (PV A):

PV A = c x (1- 1/(1+r)^t)/r

c = Monthly repayment

t = time it will take to pay off

r = rate of interest per month

$ 11,500 = $500 x (1 – 1 / (1+0.0125)^t / 0.0125

When you solve this problem you get:

1/(1+0.0125)t = 1 – (($11,500)(0.0125) / ($500))

1/1.0125^t = 0.7125

1.0125^t = 1/0.7125

1.0125^t = 1.4035

t = In 1.4035 / In 1.0125

t = 27.29 months