Question & Answer: For each of the following notes, calculate the simple interest due at the end of the term……

For each of the following notes, calculate the simple interest due at the end of the term.

Note Face Value (Principal) Rate Term 1 $20,000 4% 6 years 2 20,000 6% 4 years 3 20,000 8% 3 years

Use the appropriate present or future value table: FV of $1, PV of $1, FV of Annuity of $1 and PV of Annuity of $1 Round your calculations to nearest dollar. Finally, assume that the interest on the notes is compounded semiannually.

Calculate the amount of interest due at the end of the term for each note. When using the Present Value and Future Value tables be sure to use all the digits shown. If required, round your answers to nearest dollar.

Interest

Note 1 $

Note 2 $

Note 3 $

Expert Answer

 

Note 1 Simple interest on 20000 at 4% for 6 years = 20000*4%*6 = 4800

Note 2 Simple interest 20000 at 6% for 4 years = 20000*6%*4 = 4800

Note 3 Simple interest 20000 at 8% for 3 years = 20000*8%*3 = 4800

Compound interest

Note 1 FV = 20000* (1+.02)12 = 25365, so interest is (23365 – 20000 ) = 5365.

Note 2 FV = 20000* (1+.03)8 = 25335, so interest is (25335 – 20000 ) = 5335.

Note 3 FV = 20000* (1+.04)6 = 25306, so interest is (25306 – 20000 ) = 5306.

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