Question

Interest charges on notes payable may be based on a(n):

Answer 1

Interest charges on notes payable may be based on a percentage of the total amount borrowed, with the interest rate calculated by multiplying the principal amount by the interest rate.

Step-by-step explanation:

Interest charges on notes payable may be based on a percentage of the total amount borrowed. This percentage is called the interest rate. The interest rate is determined by several factors, including the creditworthiness of the borrower and the current market conditions. For example, if a firm issues bonds and promises an interest rate of 5%, a bondholder who owns a $10,000 bond would receive $500 in interest payments each year. The interest charges are calculated by multiplying the principal amount by the interest rate.

Answer 2

Interest charges on notes payable may be based on a fixed or variable interest rates.

A fixed interest rate does not change the interest amount charged over the length of the loan. With a fixed interest rate borrows can predict their payments.

A variable interest rate can change during the course of the length of the loan. The market can determine the change in interest rate and it is hard to accurately determine your payment for the length of the loan.