The maturity value of a $2,000 note due in 30 days at 12% interest is $2,020. True or False
The maturity value of a $2,000 note due in 30 days at 12% interest is $2,020. True or False
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![**Question 5:**
The maturity value of a $2,000 note due in 30 days at 12% interest is $2,020. True or False?
---
**Explaining the Concept:**
To determine the maturity value of a note, we use the formula for simple interest:
\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \frac{\text{Time}}{360} \]
Where:
- **Principal** is the initial amount, which is $2,000.
- **Rate** is the annual interest rate, which is 12%.
- **Time** is the duration in days, here it's 30 days, usually calculated on a 360-day year for simplicity in finance.
**Calculation:**
1. Calculate the interest:
\[ \text{Interest} = 2000 \times 0.12 \times \frac{30}{360} = 2000 \times 0.12 \times 0.0833 \approx 20 \]
2. Add the interest to the principal to find the maturity value:
\[ \text{Maturity Value} = \text{Principal} + \text{Interest} = 2000 + 20 = 2020 \]
The statement is **True**.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb41226b8-2790-43a1-8146-1b16eee28615%2F968d6836-0d7c-4061-ad8d-2c569aeea730%2Fohz849_processed.png&w=3840&q=75)
Transcribed Image Text:**Question 5:**
The maturity value of a $2,000 note due in 30 days at 12% interest is $2,020. True or False?
---
**Explaining the Concept:**
To determine the maturity value of a note, we use the formula for simple interest:
\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \frac{\text{Time}}{360} \]
Where:
- **Principal** is the initial amount, which is $2,000.
- **Rate** is the annual interest rate, which is 12%.
- **Time** is the duration in days, here it's 30 days, usually calculated on a 360-day year for simplicity in finance.
**Calculation:**
1. Calculate the interest:
\[ \text{Interest} = 2000 \times 0.12 \times \frac{30}{360} = 2000 \times 0.12 \times 0.0833 \approx 20 \]
2. Add the interest to the principal to find the maturity value:
\[ \text{Maturity Value} = \text{Principal} + \text{Interest} = 2000 + 20 = 2020 \]
The statement is **True**.
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