Question

On January 1, 2020, Ann Price loaned $154440 to Joe Kiger. A zero-interest-bearing note (face amount, $200000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2022. The prevailing rate of interest for a loan of this type is 9%. The present value of $200000 at 9% for three years is $154440. What amount of interest income should Ms. Price recognize in 2020

Answer 1

Answer:

$13,899.60

Explanation:

The amount of interest income that Ms. Ann Price should recognize in year 2020,the year the loan was given to Joe Kiger is the amount of the loan given out multiplied by the prevailing interest on similar loan which is shown below:

interest income in the year 2020=$154,440*9%=$13,899.60

The amount computed is the interest amortized for the year.

By multiplying the prevailing interest rate by outstanding loan amount each ,at  end of the third year the loan amount would be $200,000 as shown below:

future value=$154,440*(1+9%)^3=$ 200,004.28   approximately $200,00