Cash Management - Overdraft Question

Mollypod88

Hi All,

I have a question regarding overdraft facilities please can somebody explain how to get the answer:

"The bank is also offering a overdraft facility of £19500 which attracts an annual interest rate of 12%. The partners believe that they will require an average overdraft of £16,000 for 8 months of the first year"

Answer = £1280

How do I get to this answer?

Many thanks!

Richard

£16,000 x 12% = £1,920 charge for the year, however, they only expect to need it for 8 months so £1,920 x 8/12 = £1,280

Mollypod88

Thank you!