Question

Has a choice of two different notes that both have a face value (principal) of $15,000 for 60 days. One note has a simple interest rate of 8%, while the other note has a simple discount rate of 8%. For each type of note, calculate:

a. Interest owed

b. Maturity value

c. Proceeds

d. Effective rate

Answer 1

To calculate the interest owed, maturity value, proceeds, and effective rate of two different notes with the same principal and different interest rates, use the appropriate formulas for each calculation.

Step-by-step explanation:

To calculate the interest owed, use the formula: Interest = Principal × Rate × Time. For the note with a simple interest rate of 8% over 60 days, the interest owed would be: Interest = $15,000 × 0.08 × (60/365). To find the maturity value, add the principal and the interest: Maturity Value = Principal + Interest. In this case, Maturity Value = $15,000 + Interest. To calculate the proceeds, subtract the interest owed from the maturity value: Proceeds = Maturity Value - Interest. Lastly, to find the effective rate, use the formula: Effective Rate = (Interest / Principal) × (365 / Time).