When a $40,000, 90-day, 9% interest -bearing note payable matures, total payment will amount to:
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Before I answer this question, I would like to clarify some of the assumptions that we need to make.
We assume that the interest of 9% is simple interest per year. This is because generally there is no compounding of interest over a short period like 90 days. The interest on part of an year can be calculated on a daily basis with a year considered to be 365 days long. Alternatively, the interest may also be calculated on some other basis such as monthly or quarterly. Usually, in bonds of high value and when the duration is specified in days the interest is calculated on daily basis. So we will assume that this is the applicable method in this case.
Coming to solving the question:
Interest = (Principal amount)*(Interest rate/100)*(Term of note)/365
Substituting the given values in the above equation:
Interest = 40000*(9/100)*(90/365) = 887.67
Total Payment = Principle + Interest = 40000 + 887.67 = 40887.67
Total payment on maturity = $40887.67
Generally in case of bonds and other notes number of days are assumed to be 360 days.
AT the year end the amount paid will be principal amount and interest paid
interest = Principal*rate of interest*time
Principal = $40000
Time = 90/360
interest = 40000*.09*90/360
thus total amount due = $40000 +900= $40900
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