Edgar borrowed $8200 on a 220-day note that required ordinary interest at 10.3%. Edgar paid $3000 on the note on day 150. How much interest did he save by making the partial payment?
A) $516.14
B) $53.04
C) $404.95
D) $240.72

Question

Quizplus · Accepted Answer

The interest saved by making a partial payment can be calculated by comparing the interest that would have been paid without the partial payment to the interest actually paid with the partial payment. The ordinary interest formula is I = PRT, where I is interest, P is principal, R is the rate (as a decimal), and T is the time in years. Without the partial payment, the interest for 220 days on $8200 at 10.3% would be calculated as follows: I = 8200 * 0.103 * (220/365) = $622.04. With the partial payment, interest for the first 150 days on $8200 is: I1 = 8200 * 0.103 * (150/365) = $346.03. The remaining $5200 ($8200 - $3000) incurs interest for the remaining 70 days: I2 = 5200 * 0.103 * (70/365) = $122.97. Total interest with the partial payment is I1 + I2 = $346.03 + $122.97 = $469. So, the interest saved is $622.04 - $469 = $153.04, but since this option is not available, the calculation needs to be re-examined for accuracy.

Edgar Borrowed $8200 on a 220-Day Note That Required Ordinary