Raul Fletes borrowed $9,500 on a 90-day note that required ordinary interest at 11.97%. Raul paid $4,750 on the note on the 15th day. How much interest did he save by making the partial payment?
Raul Fletes borrowed $9,500 on a 90-day note that required ordinary interest at 11.97%. Raul paid $4,750 on the note on the 15th day. How much interest did he save by making the partial payment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Problem Statement:**
Raul Fletes borrowed $9,500 on a 90-day note that required ordinary interest at 11.97%. Raul paid $4,750 on the note on the 15th day. How much interest did he save by making the partial payment?
**Solution:**
The interest saved is $______. (Round to the nearest cent as needed.)
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**Explanation:**
This is a practical application of calculating interest savings through partial payments on a loan. In this scenario:
1. **Principal Amount:** $9,500
2. **Interest Rate:** 11.97% (ordinary interest)
3. **Loan Term:** 90 days
4. **Partial Payment:** $4,750 paid on the 15th day
By making an early payment, Raul reduces the principal that accrues interest, thus saving on interest over the remaining term of the loan. Calculating the exact amount saved requires using the formula for ordinary interest, and applying adjustments for the reduced principal after the partial payment.
Remember to carry out necessary calculations and ensure proper rounding to the nearest cent for accuracy.
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