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On March 1,Hugh Corporation plans to borrow $550,000 from the Scotland State Bank by signing a 12%,15-year note payable.The note calls for 180 monthly payments of $6,000,which includes both interest and principal components.
-Hugh's budgeted interest expense for March is:
A)$5,000.
B)$2,444.
C)$5,500.
D)$6,000.

Question

Quizplus · Accepted Answer

The interest for March is calculated on the principal amount at the beginning of the period. Since the annual interest rate is 12%, the monthly interest rate is 1% (12% divided by 12 months). Therefore, the interest for March is 1% of $550,000, which equals $5,500.

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