Michigan Bank lends Detroit Furniture Company $100,000 on December 1.Detroit Furniture Company signs a $100,000,9%,4-month note.The total cash paid for interest (only)at maturity of the note is:

Question

Quizplus · Accepted Answer

The formula to calculate interest on a simple interest loan is:

Interest = Principal x Rate x Time

In this case, the principal is $100,000, the rate is 9%, and the time is 4 months. However, since the interest is only due at the maturity of the note, we need to convert the time to a fraction of a year:

4 months ÷ 12 months = 1/3 years

So the total interest paid at maturity will be:

Interest = $100,000 x 9% x 1/3 = $3,000

Therefore, the answer is B) $3,000.

Michigan Bank Lends Detroit Furniture Company $100,000 on December 1