How to Calculate Interest and Maturity Value for Notes

How do you calculate the interest and maturity value for notes?

Using the interest formula, compute the interest and maturity values for each of the following notes:

Principal Interest Term Rate

$4,000 11.5% 60 days

$10,000 11.75% 90 days

$6,500 12.75% 60 days

$900 12.25% 120 days

Answer:

The answer is:

A: I=$76,67 MV=$4076,67

B: I=$293,75 MV=$10293,75

C: I=$138,125 MV=$6638,125

D: I=$36,75 MV=$936,75

Notes are often a key component of how a business finances its operations. For purposes of accounting, it's important to be able to calculate the maturity value of a note to know how much a business will have to pay or receive when the note comes due.

In general, notes are a form of short-term commercial financing. The maturity value is the amount of money that the company would receive when the note comes due.

When you know the principal amount, the rate, and the time, the amount of interest can be calculated by using the formula:

I = P*r*t

I= Total interest

P= principal

r= interest rate

t= time

To calculate the Maturity Value you need to sum the principal to the total interest accumulated over time.

Maturity Value= Principal + Interest

In this exercise:

A:

Principal: $4000 r=11.5% t=60 days

I=4000*0.115*(60/360)= $76,67

Maturity Value= 4000 + 76,67= $4076,67

B:

Principal: $10,000 r=11.75% t=90 days

I=10000*0.1175*(90/360)= $293,75

Maturity Value= 10000+ 293,75= $10293,75

C:

Principal= $6,500 r=12.75% time=60 days

I=6500*0.1275*(60/360)= $138,125

Maturity Value= 6500+ 138,125= $6638,125

D:

Principal= $900 r=12.25% time=120 days

I=900*0.1225*(120/360)= $36,75

Maturity Value= 900+ 36,75= $936,75