Question

Prefix Supply Company received a 120-day, 8% note for $450,000, dated April 9 from a customer on account. Assume 360 days in a year.

a. Determine the due date of the note. August 7
b. Determine the maturity value of the note. I need assistance with the maturity value.

Answer 1

The maturity value of a 120-day, 8% promissory note with a principal amount of $450,000 due on August 7 is $462,000. This includes the original principal plus $12,000 in interest calculated over the 120-day period.

Step-by-step explanation:

Calculating the Maturity Value of a Promissory Note

The task involves calculating the maturity value of a 120-day, 8% promissory note with a principal amount of $450,000. To calculate the maturity value of the note, we need to compute the interest and add it to the principal.

The formula for finding the interest (I) on a note is:

I = Principal (P) × Annual Interest Rate (R) × Time (T) / 360

For Prefix Supply Company's note:

I = $450,000 × 0.08 × 120 / 360
= $450,000 × 0.08 × 1/3
= $12,000

The maturity value of the note is then the sum of the principal and the interest: $450,000 (Principal) + $12,000 (Interest) = $462,000.

Therefore, the maturity value of the note due on August 7 is $462,000.