Appendix 5
Solutions to Interest Calculations Self-Quiz
These are the solutions to the Self-Quiz in Appendix 3. The calculations use the formulas for both simple and compound interest found in Chapter 12. Microsoft Excel was used for the calculations. The use of a hand calculator may yield calculations that differ by a few cents due to truncation.
Invoice #1
| Invoice amount | $10,000 |
| Due date | April 15, 2008 |
| Payment date | April 30, 2008 |
| Days late | 15 |
| Interest rate | 0.0475 |
| Interest penalty due to vendor | $19.79 |
Invoice #2
| Invoice amount | $35,000 |
| Due date | July 6, 2008 |
| Payment date | August 1, 2008 |
| Days late | 26 |
| Interest rate | 0.05125 |
| Interest penalty due to vendor | $129.55 |
Invoice #3
| Invoice amount | $3,000 |
| Due date | September 30, 2008 |
| Payment date | October 1, 2008 |
| Days late | 1 |
| Interest rate | 0.05125 |
| Interest penalty due to vendor | $0.00 (exact amount was $0.43; don’t pay interest less than $1.00) |
| Invoice amount | $17,000 |
| Due date | February 20, 2008 |
| Payment date | March 10, 2008 |
| Days late | 19 (2008 was a leap year) |
| Interest rate | 0.0475 |
| Interest penalty due to vendor | $42.62 |
Invoice #5
| Invoice amount | $5,000 |
| Due date | June 29, 2008 |
| Payment date | July 17, 2008 |
| Days late | 18 |
| Interest rate | 0.0475 |
| Interest penalty due to vendor | $11.88 |
Invoice #6
| Invoice amount | $8,500 |
| Due date | June 30, 2008 |
| Payment date | July 25, 2008 |
| Days late | 25 |
| Interest rate | 0.05125 (use the interest rate in effect the day after the due date—July 1) |
| Interest penalty due to vendor | $30.25 |
Invoice #7
| Invoice amount | $10,000 |
| Due date | December 10, 2007 |
| Payment date | February 20, 2008 |
| Days late | 82 (two months of 30 days, plus 22 residual days) |
| Interest rate | 0.0575 |
| Interest penalty due to vendor | $131.54 |
Invoice #8
| Invoice amount | $12,000 |
| Due date | January 15, 2007 |
| Payment date | February 20, 2008 |
| Days late | 360 (interest is payable for only one year—or 12 30-day months) |
| Interest rate | 0.0525 |
| Interest penalty due to vendor | $645.38 |
Note: For this invoice, assume the interest penalty is not paid with the principal on April 10. On April 22, the vendor requests the interest penalty and additional penalties in writing. What is the total amount of interest due as of April 22?
| Invoice amount | $10,000 |
| Due date | March 15, 2008 |
| Payment date | April 10, 2008 |
| Days late | 26 |
| Interest rate | 0.0475 |
| Interest penalty due to vendor | $34.31 + $34.31 additional penalty = $68.62 total due |
Invoice #10
Note: For this invoice, assume the interest penalty is not paid with the principal on May 12. On May 23, the vendor requests the interest penalty and additional penalties in writing. What is the total amount of interest due as of May 23?
| Invoice amount | $10,000 |
| Due date | May 7, 2008 |
| Payment date | May 12, 2008 |
| Days late | 5 |
| Interest rate | 0.0475 |
| Interest penalty due to vendor | $6.60 + $25.00 additional penalty = $31.60 total due |
Invoice #11
Note: In this case, the agency took an inappropriate discount (after the discount due date). Calculate the interest due if the agency paid back the $5,000 discount to the vendor on September 9.
| Invoice amount | $500,000 |
| Payment terms | 1/10 Net 30 |
| Discount due date | August 5, 2008 |
| Payment date | August 10, 2008 (discount taken; $495,000 paid) |
| Vendor complains | September 8, 2008 |
| $5,000 paid | September 9, 2008 |
| Days late | 30 (calculated from the date the discount was improperly taken until it was paid back) |
| Interest rate | 0.05125 |
| Interest penalty due to vendor | $21.35 |