A $10,000, 6%, 5-year note payable that pays interest quarterly would be discounted back to its present value by using tables that would indicate which one of the following period-interest combinations?

Question

Quizplus · Accepted Answer

Since the note pays interest quarterly for five years, there would be 20 interest periods (4 per year, multiplied by 5 years). The interest rate is 6% per year, but since interest is paid quarterly, the period-interest combination should be divided by 4, resulting in a 1.5% interest rate per period. Therefore, the correct period-interest combination is 20 interest periods, 1.5% interest.

A $10,000, 6%, 5-Year Note Payable That Pays Interest Quarterly