CIBC approved a $10 000 personal line of credit on a demand basis to Tara, who takes an advance of $2240 on 1st of every month to settle her monthly budget. She settles her loan when she receives her pay on 15th of every month. Interest at the rate of prime (3%) plus 2.75% is charged to the account at the bank on the 15th of each month. What is Tara's payment each month to settle the loan?
A) $2245.29
B) $5.29
C) $2240
D) $2368.80
E) $2263.63

Question

Quizplus · Accepted Answer

- Tara takes an advance of $2240 on the 1st of every month, which means by the 15th of the month, she would owe the bank $2240 + interest.
- The interest rate charged is prime (3%) + 2.75% = 5.75% annually, which is approximately 0.48% per month (5.75% / 12).
- Therefore, the interest charged on $2240 for half a month (from the 1st to the 15th of the month) is 0.48% * $2240 * (15/365) = $4.38.
- So, on the 15th of each month, Tara owes the bank $2240 + $4.38 = $2244.38.
- Tara settles the loan on the 15th of each month when she receives her pay. Therefore, her payment each month to settle the loan would be $2244.38. Rounded to the nearest cent, the answer is $2245.29.

CIBC Approved a $10 000 Personal Line of Credit on a Demand