SOLUTION: Steve Perry borrowed $70,000 at 12% ordinary interest for 60 days. On day 20 of the loan, Steve made a partial payment of $8,000. What is the new maturity value (in $) of the loan?

Question 1172504: Steve Perry borrowed $70,000 at 12% ordinary interest for 60 days. On day 20 of the loan, Steve made a partial payment of $8,000. What is the new maturity value (in $) of the loan? (Round your answer to two decimal places.)
Answer by mahikab(11) (Show Source): You can put this solution on YOUR website!
This problem needs several assumptions and I am going to answer with my assumptions as appropriate.
Given:
Interest rate r = 12%
Time = 1 year = 365 days

Assumption 1: Partial payment of $8,000 will directly applied to Principal
Here the interest will be calculated as below:
a) 12% on $70,000 for 20 days
Interest in this case = $70000 * 12/100 * 20/365 = $460.27
b) 12% on $70,000 - $8,000 = $62,000 for remaining 60-20 = 40 days
Interest in this case = $62000 * 12/100 * 40/365 = $815.34
So the maturity value of this loan on 60th day is = $62,000 + $460.27 + $815.34 = $63,275.62

Assumption 2: Principal will be adjusted after interest is paid off.
So the loan amount for first 20 days = $70,000
Interest for the 20 days = $70000 * 12/100 * 20/365 = $460.27
Partial payment towards principal = $8,000 - $460.27 = $7,539.73
Balance principal = $70000 - $7,539.73 = $62,460.27
Interest on this remaining principal = $62,460.27 * 12/100 * 40/365 = $821.40
So the maturity value of this loan on 60th day is = $62,460.27 + $821.40 = $63,281.67
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