Your company wishes to borrow $800,000 for 90 days in order to make a large purc

Question

Your company wishes to borrow $800,000 for 90 days in order to make a large purchase of some equipment. The manufacturer of the equipment is giving you a good deal and you think this purchase will help your business grow in the future. You do not have this cash on hand and must borrow it. The bank you use offers to loan to you the money at 10.5% ordinary interest.
•What is the amount of interest on this loan?

Because you are a customer at the bank, you ask if they could lend you the money at 10.5% exact interest.
•Using exact interest, what is the amount of interest on this loan?

Explanation / Answer

Amount of interest on loan By Using Ordinaryinterest : (360 days in a year)

= $800000 *10.5% * 90/360

= $21000

Amount of interest on loan By Using Exact interest: (365 days in a year)

= $800000 * 10.5% * 90/365

= $20712.3

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