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hello!
I have a doubt regarding one question given in the Kaplan exam kit. I understand what they mean and how to calculate interest on overdraft but cant seem to understand how they’ve arrived at the answer.
Can you please help me out in understanding how to calculate interest on overdraft facility in 3 months time if no action was taken and if the proposals are implemented?
Thank you in advance!I do not have the Kaplan Kit (only the BPP Kit), but I do have the original exam question and so I assume that Kaplan have not changed it in their kit.
However I am a bit puzzled because you write that you understand how to calculate the interest, but then ask me how to calculate the interest 🙂
The interest is 6.17% per year, and so the monthly interest is the (12th root of 1.0617) – 1 = 0.005 (or 0.5%)
Each month the interest is therefore 0.5% of the overdraft at the start of the month (so the end of the previous month).
If not action is taken, then the overdraft at the start of month 1 is 3,800 and therefore the interest charge in month 1 is 0.5% x 3800 = 19.
The overdraft at the start of month 2 is 3549 and so the interest charge in month 2 is 0.5% x 3549 = 18.
It is the same workings for each month, with and without action being taken.
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