Asked by Chelsea Lewis on Jul 22, 2024
Verified
Assuming a 360-day year, when a $20,000, 90-day, 5% interest-bearing note payable matures, total payment will be
A) $21,000
B) $1,000
C) $20,250
D) $250
Interest-Bearing Note
A promissory note or loan that accrues interest over time, requiring the borrower to pay back the principal amount plus interest.
Payable Matures
Refers to the point in time when a financial obligation (payable) becomes due and must be paid.
Total Payment
The full amount paid over the life of a loan, including principal and interest.
- Comprehend the calculation of interest on notes payable.
Verified Answer
AH
Ammar HameedJul 25, 2024
Final Answer :
C
Explanation :
The interest on the note can be calculated using the simple interest formula:
Interest = Principal x Rate x Time
where Principal is $20,000, Rate is 5% per year, and Time is 90/360 years (since it's a 90-day note and there are 360 days in a year).
Interest = $20,000 x 0.05 x (90/360) = $250
Therefore, the total payment at maturity will be the sum of the principal and the interest:
Total payment = Principal + Interest = $20,000 + $250 = $20,250
Hence, the answer is option C.
Interest = Principal x Rate x Time
where Principal is $20,000, Rate is 5% per year, and Time is 90/360 years (since it's a 90-day note and there are 360 days in a year).
Interest = $20,000 x 0.05 x (90/360) = $250
Therefore, the total payment at maturity will be the sum of the principal and the interest:
Total payment = Principal + Interest = $20,000 + $250 = $20,250
Hence, the answer is option C.
Learning Objectives
- Comprehend the calculation of interest on notes payable.