A loan of $290,000 at 6% closes on 22 September. The lender collects interest to the end of the month at closing.
Correct Answer
A) Prepaid interest of $429.04, which is the 9 days at $47.67 a day
Daily interest is $290,000 times 6% divided by 360, or $48.33, and on a 365-day basis $47.67; from 22 September to the end of the month is 9 days, giving $429.04 on the 365-day convention. Other choices: a full month is what the first payment covers in arrears; one day understates the period; and interest does accrue from the day of disbursement. Source: Prepaid interest at closing
Why This Is the Correct Answer
Daily interest is $290,000 times 6% divided by 360, or $48.33, and on a 365-day basis $47.67; from 22 September to the end of the month is 9 days, giving $429.04 on the 365-day convention. Other choices: a full month is what the first payment covers in arrears; one day understates the period; and interest does accrue from the day of disbursement. Source: Prepaid interest at closing
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