Determine the maturity date and compute interest for each note. Days to be used per year 360 days Note 1 2 3 Required: Note Contract Date HN3 1-Mar 15-May 20-Oct Principal Contract Date $10,000 15,000 8,000 (Use cells A5 to F8 from the given information to complete this question.) Maturity Date Interest Expense Interest Rate 6% 8% 4% Period of Note (Term) 60 days 90 days 45 daysDetermine the maturity date and compute interest for each note. Days to be used per year 360 days Note 1 2 3 Required: Note Contract Date HN3 1-Mar 15-May 20-Oct Principal Contract Date $10,000 15,000 8,000 (Use cells A5 to F8 from the given information to complete this question.) Maturity Date Interest Expense Interest Rate 6% 8% 4% Period of Note (Term) 60 days 90 days 45 days
The Correct Answer and Explanation is :
To determine the maturity dates and compute the interest for each note, we will follow these steps:
- Determine the Maturity Date:
- Add the term of the note (in days) to the contract date.
- Compute the Interest Expense:
- Use the formula:
Interest = Principal × Interest Rate × (Days in Term / 360) - Here, 360 days are used per year as specified.
Note 1:
- Contract Date: March 1
- Principal: $10,000
- Interest Rate: 6%
- Term: 60 days
Maturity Date:
- March 1 + 60 days = April 30
Interest Expense:
- Interest = $10,000 × 6% × (60 / 360) = $100
Note 2:
- Contract Date: May 15
- Principal: $15,000
- Interest Rate: 8%
- Term: 90 days
Maturity Date:
- May 15 + 90 days = August 13
Interest Expense:
- Interest = $15,000 × 8% × (90 / 360) = $300
Note 3:
- Contract Date: October 20
- Principal: $8,000
- Interest Rate: 4%
- Term: 45 days
Maturity Date:
- October 20 + 45 days = December 4
Interest Expense:
- Interest = $8,000 × 4% × (45 / 360) = $40
Summary:
- Note 1:
- Maturity Date: April 30
- Interest Expense: $100
- Note 2:
- Maturity Date: August 13
- Interest Expense: $300
- Note 3:
- Maturity Date: December 4
- Interest Expense: $40
These calculations are based on the 360-day year convention, commonly used in financial calculations for simplicity. This method assumes each month has 30 days, which simplifies the computation of interest over different periods. It’s important to note that while the 360-day convention is widely used, some financial institutions and contracts may use the actual/actual day count convention, which accounts for the actual number of days in each month and year. Therefore, it’s crucial to confirm the day count convention specified in any financial agreement to ensure accurate interest calculations.