Solve the problem. Round dollar amounts to the nearest cent. Use ordinary interest unless otherwise indicated.
-On October 12, Marge Smith paid a state income tax payment, which was due on June 30. The penalty was 10% simple interest on her unpaid tax of $641. Find the penalty using exact interest.
A)$18.44
B)$18.52
C)$18.26
D)$17.91

Question

Quizplus · Accepted Answer

To find the penalty using exact interest, we need to use the formula:

I = PRT

where I is the interest, P is the principal (unpaid tax), R is the interest rate as a decimal, and T is the time in years.

In this case, the principal is $641, the interest rate is 10% or 0.1, and the time is 3 1/2 months or 3.5/12 years (from June 30 to October 12).

So, using exact interest:

I = $641 x 0.1 x (3.5/12)
I = $18.26

Therefore, the penalty using exact interest is $18.26, which is closest to answer choice C.

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