Use the present value and future value tables included in Appendix 8 and on the textbook companion website.
-An $18,000, 8 percent (payable annually), one-year note is accepted by the bank on April 1. If the note is prematurely repaid on November 1 of the same year (without penalty), how much interest is paid?

Question

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-An $18,000, 8 percent (payable annually), one-year note is accepted by the bank on April 1. If the note is prematurely repaid on November 1 of the same year (without penalty), how much interest is paid?

Quizplus · Accepted Answer

Using the present value table in Appendix 8 or on the textbook companion website, we can find the present value factor for 7 months at an annual rate of 8%.

Present value factor for 7 months at 8% = 0.9524

The present value of the note on November 1 is:

Present value = $18,000 x 0.9524 = $17,143.20

Using the future value table in Appendix 8 or on the textbook companion website, we can find the future value factor for 4 months at an annual rate of 8%.

Future value factor for 4 months at 8% = 1.027

The interest paid on November 1 is:

Interest paid = $18,000 x 8% x 4/12 x 1.027 = $489.60

Therefore, the answer is B) $840.

Use the Present Value and Future Value Tables Included in Appendix