In Order to Pay Off a Debt That He Took

question 202

Multiple Choice

In order to pay off a debt that he took out today, Roger will have to make a payment of $3,500 in 15 months and $5,500 in 36 months. The interest rate is 8% compounded quarterly. What is the total amount of interest that is included in these payments?

• A) $1,016.39
• B) $1,493.23
• C) $2,287.88
• D) $7,506.77
• E) $1,839.61

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Definitions:

Collection Time

The average period it takes for a business to receive payments owed by its customers for goods or services sold on credit.

Money Market Securities

Short-term financial instruments that are typically liquid and considered safe, such as Treasury bills and certificates of deposit.

Average Daily Float

The average amount of un-cleared or in-process checks and electronic payments that are recorded in a company’s accounting system at any given time.

Collection Delay

The time it takes for a business to receive payment after issuing an invoice or credit sale, impacting cash flow.