A company takes out a loan of £60,000 on 1 September at 6% a year. Interest is payable annually in arrears. The year end is 31 December. What is the interest accrued at the year end?
Answer and explanation
Correct answer: A. £1,200
- Step 1: The loan has been outstanding for 4 months (September to December).
- Step 2: Interest = £60,000 × 6% × 4/12 = £1,200 accrued, since it has not yet been paid.
Answer
£1,200.
Why not the others: £300 is a figure for one month only. £2,400 treats the loan as outstanding for 8 months. £3,600 is a full year's interest, but only four months have passed.
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