When the market interest rate on a short-term note receivable is greater than the stated rate,________.
A)the present value of the note is greater than its stated value
B)the present value of the note is less than its stated value
C)the stated value of the note is greater than its face value
D)the stated value of the note is less than its face value

Question

Quizplus · Accepted Answer

When the market interest rate on a short-term note receivable is greater than the stated rate, the present value of the note is less than its stated value. This is because the market is willing to pay less for a note with a lower interest rate compared to higher interest rates available in the market. As a result, the note's present value decreases, making the actual value of the note less than the stated value.

When the Market Interest Rate on a Short-Term Note Receivable