Joe signs a $5 000, 8%, 6- month note dated 1 September 2014. What is Joe's 2015 interest expense for this note?
A)$400
B)$133
C)$67
D)$200

Question

Quizplus · Accepted Answer

The interest for the note is calculated for the period it is outstanding. Since the note is for 6 months starting from September 1, 2014, it matures on March 1, 2015. The interest expense for 2015 would only cover the period from January 1, 2015, to March 1, 2015, which is 2 months. The annual interest is $5,000 * 8% = $400. For 2 months, the interest is ($400/12) * 2 = $67.

Joe Signs a $5 000, 8%, 6- Month Note Dated