maturity value/ please help

Question

May. 15, 2010, Leven Corp. negotiated a short-term loan of $703,000. The loan is due Oct. 13, 2010, and carries a 7.04% interest rate. Use ordinary interest to calculate the interest.

What is the total amount Leven would pay on the maturity date?(Use table value.) (Use 360 days a year. Do not round intermediate calculations. Round your answer to two decimal places. Omit the "$" sign in your response.)

Maturity value $

Answer 1

I'm not sure what the question is referring to as "table value", but this is solved using simple interest calculation (no compounding). I have left the structure of the solution without solving the entire problem, so that you can learn the fomula, etc.

Beginning Date 5/15/2010

Ending Date 10/13/2010

Days in lending period 148
Days in year 360
Percentage of year in lending period (solve for this)

Interest calculation
  Principal amount 703,000
x Rate, annual (provided in question)
x Percentage of year (from above answer)
Product of above (interest due at maturity) (solve for this) A

Add: Principal amount due at maturity 703,000 B

Total due at maturity (solve for this) A + B

 

Remember: interest due = principal amount X rate (annual) X time (percentage of year that loan is outstanding). Don't forget to add back in the principal amount due at maturity, as well. 

 

Good luck!

Answer 2

From 5/15/2010 to 10/13/2010
Days you were lent the money(lending period) count the days 148(5, 30 day months minus 2 days)
360 days a year

percent of the year you owe the loan, fraction of (days you owe)/(days a year)

Rationale for this percentage of the year:
interest =%*year, you need %*percent of the year you are loaned the money because you don’t owe them for a whole year.

Interest you end up paying

Principal(amount you are loaned)*interest Rate(.0704)*%of year(fraction of days)

Plug-in everything in and you get the total interest you should pay but, you also have to pay back the loan so you add the principal to the interest to get the total amount.