Question

The opening balance of Company A is 25,000, and the repayment is scheduled for 1,000 per month at an annual interest rate of 5%. Use the average debt balance to calculate the interest payment. The closing balance of debt at the end of the month is _____ and the interest payment is _____.

Answer 1

To calculate the interest payment, find the average debt balance by adding the opening and closing balance and dividing by 2. Then, multiply the average debt balance by the monthly interest rate to get the interest payment.

Step-by-step explanation:

To calculate the interest payment using the average debt balance, we need to calculate the average debt balance for the month. To do this, we add the opening balance and closing balance of debt and divide them by 2. In this case, the opening balance is $25,000 and the closing balance is the repayment of $1,000. So the average debt balance is $(25,000 + 1,000) / 2 = $13,000.

Next, we calculate the interest payment by multiplying the average debt balance by the annual interest rate and dividing it by 12 (since it's a monthly payment). The annual interest rate is 5%, so the monthly interest rate is 5% / 12 = 0.41667%. Therefore, the interest payment is $13,000 × 0.41667% = $54.17 (rounded to the nearest cent).

Answer 2

Closing balance of debt at the end of the month = $24,000

Interest payment = $102.08

Step-by-step explanation:

The computation of closing balance of debt at the end of the month and the interest payment is shown below:-

Closing balance of debt at the end of the month = Opening balance of company A - Scheduled Repayment per month

= $25,000 - $1,000

= $24,000

Interest payment = Average Debt × Annual interest rate × 12 months

= (($25,000 + $24,000) ÷ 2) × 0.05 ÷ 12 months

= $102.08

Therefore we have applied the above formulas.