One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $500 per month. You will charge 1.55 percent per month interest on the overdue balance. If the current balance is $14,500, how long will it take for the account to be paid off?

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Business

Alessandra Ellison

4 November, 22:43

One of your customers is delinquent on his accounts payable balance. You've mutually agreed to a repayment schedule of $500 per month. You will charge 1.55 percent per month interest on the overdue balance. If the current balance is $14,500, how long will it take for the account to be paid off?

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Carissa · Answer 1

Here we need to find the length of an annuity. We know the interest rate, the PV, and the payments. Using the PVA equation:

PVA = C ({1 - [1 / (1 + r) t]} / r)

$14,500 = $500{[1 - (1/1.0155) t] / 0.0155}

Now we solve for t:

1/1.0155t = 1 - {[ ($14,500) / ($500) ] (0.0155) }

1/1.0155t = 0.5505

1.0155t = 1 / (0.5505) = 1.817

t = ln 1.817 / ln 1.0155 = 38.83 months

Account will be paid off in 38.83 months.