In a settlement procedure, prepaid interest is required for the time period from September 21 (date of closing) through September 30. What amount of prepaid interest is due for a loan of $200,000 at 5% interest? (Banker's year is 360 Days)
A) $250.00
B) $277.78
C) $246.57
D) 208.33

Question

Quizplus · Accepted Answer

To find the prepaid interest, we need to calculate the daily interest rate by dividing the annual interest rate by the banker's year (360).

Daily interest rate = 5% / 360 = 0.0001389

Next, we need to calculate the number of days between September 21 and September 30, which is 10 days.

Finally, we can calculate the prepaid interest as:

Prepaid interest = loan amount x daily interest rate x number of days

= $200,000 x 0.0001389 x 10

= $277.78

Therefore, the prepaid interest due is $277.78, which corresponds to choice B.

In a Settlement Procedure, Prepaid Interest Is Required for the Time