Gabriel defaulted on her tax worth $4189.00. CRA audited her and after 31 months sent her the tax bill, which also included an interest rate compounded annually at 3.75% p.a. What is the total tax due, if Gabriel pays it immediately on receiving the notice?

Question

Quizplus · Accepted Answer

To calculate the total tax due, we need to first find the interest accumulated over the 31 months.

We can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:
A = the final amount owed (tax + interest)
P = the principal amount owed (tax)
r = the annual interest rate (3.75%)
n = the number of times the interest is compounded in a year (once annually in this case)
t = the time in years (31/12 = 2.58 years)

Plugging in the values, we get:

A = $4189(1 + 0.0375/1)^(1*2.58)
A = $4689.94

So the total amount owed is $4189 (the original tax amount) plus $4689.94 (the interest owed), which is $8878.94.

Therefore, the correct answer is D) $4606.94, which is closest to the calculated amount of $4689.94.

Gabriel Defaulted on Her Tax Worth $4189