Use the following information to answer questions
On September 30, 2010, Payne Industries bought a new automobile for $16,189. Payne made a $2,000 down payment and financed the rest at 6.5% interest over the next 60 months. Payne's monthly payment is $277.62. The first payment is due on October 31, 2010.
-What is Payne's interest expense relative to this note for October 2010? (Round to the nearest cent.)
A) $ 0
B) $ 76.86
C) $ 87.69
D) $277.62
E) none of the above

Question

Use the following information to answer questions 
On September 30, 2010, Payne Industries bought a new automobile for $16,189. Payne made a $2,000 down payment and financed the rest at 6.5% interest over the next 60 months. Payne's monthly payment is $277.62. The first payment is due on October 31, 2010.
-What is Payne's interest expense relative to this note for October 2010? (Round to the nearest cent.)
A) $ 0
B) $ 76.86
C) $ 87.69
D) $277.62
E) none of the above

Quizplus · Accepted Answer

The interest expense for October 2010 is calculated on the initial principal amount financed, which is $16,189 - $2,000 = $14,189. The monthly interest rate is 6.5% annual rate divided by 12 months = 0.5417%. The interest expense for October is therefore $14,189 * 0.5417% = $76.86.

Use the Following Information to Answer Questions