Question

Gary borrowed $12,500 to buy a new equipment for his restaurant. He signed a 292-day promissory note an interest rate of 4%. Find the maturity value of the promissory note, round to the nearest cent. Use ordinary interest, which is based on a 360-day year 

Answer 1

The formula for ordinary interest is:

I = P * r * t

where:

I = the interest

P = the principal

r = the interest rate per year

t = the time in years

In this case, the principal is $12,500, the interest rate is 4%, and the time is 292/360 years (since there are 360 days in a year according to the problem statement). Therefore, we have:

t = 292/360 = 0.811111111

I = 12500 * 0.04 * 0.811111111 = 405.5555555

To find the maturity value, we add the interest to the principal:

M = P + I = 12500 + 405.5555555 = 12905.56

Therefore, the maturity value of the promissory note is $12,905.56 rounded to the nearest cent.