The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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If interest is compounded annually,the total amount of interest on an $18,000 note payable for four years at 10% is
A)$5,706.
B)$7,200.
C)$8,352.
D)$8,500.

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
-
If interest is compounded annually,the total amount of interest on an $18,000 note payable for four years at 10% is
A)$5,706.
B)$7,200.
C)$8,352.
D)$8,500.

Quizplus · Accepted Answer

Using Table 9-2, we find that the future value factor for 4 years at 10% is 1.4641. Therefore, the total amount due at the end of the 4 years is $18,000 x 1.4641 = $26,354.80. Subtracting the original principal of $18,000, we get the interest amount of $8,354.80. Rounding to the nearest dollar, the answer is $8,352. Option C is the closest choice to this amount.

The Solution to This Problem Requires Time Value of Money