Solve the problem. Assume that simple interest is being calculated in each case. Round the answer to the nearest cent
unless otherwise indicated.
-John forgot to pay his $408.00 income tax on time. The IRS charged a penalty of 5% for the 74 days the money was late. Find the penalty that was paid. (Use a 365 day year.)

Question

Quizplus · Accepted Answer

The penalty is calculated using the formula for simple interest: $I = P \times r \times t$, where $I$ is the interest (penalty in this case), $P$ is the principal amount ($408.00), $r$ is the annual interest rate (5% or 0.05 when expressed as a decimal), and $t$ is the time the money is borrowed or in this case, the time the payment is late, expressed in years. For 74 days out of a 365-day year, $t = \frac{74}{365}$. Plugging the values into the formula gives: $I = 408 \times 0.05 \times \frac{74}{365}$, which calculates to approximately $4.14.

Solve the Problem