Question

The following 6%, $1,000 notes were issued on November 1. Which of the following is the correct method of calculation for the interest accrued as of December 31 of the same year on each of the notes described?a. Interest on 4-month note is colculated os: $1,000 × 6% × 2 / 12b. Interest on 3-month nate is calculated as, $1,000 x 6% x 2 /3.c. Interest on a 4-month note is calculated as: $1,000 6% 2 / 4d. Interest on 2-year note is calculated es: $1,000 x 6% x 2 / 24.

Answer 1

Answer:

A) Interest on 4-month note is calculated as: $1,000 × 6% × 2 / 12

Explanation:

First of all, the 6% interest is annual, so any interest accrued must be calculated using periods equivalent to 1/12.

Then the time is only 2 months (November and December)

The only option that fits is A:

principal ($1,000) x 6% (interest rate) x 2/12 (2 periods) = $10