ABC Company borrows $P from XYZ bank on March 3,2010 by writing a promissory note,due in 6 months at a simple interest rate of 5%.The bank uses ordinary interest in its calculations.If the maturity value of the note is $257,000,what is P? (Answer to nearest dollar)
A)$250,494
B)$250,581
C)$250,596
D)$250,682

Question

Quizplus · Accepted Answer

The correct answer is A because the maturity value of the note is $257,000, and the simple interest rate is 5%. The interest for 6 months is $257,000 * 5% * 6/12 = $6,425. The principal is $257,000 - $6,425 = $250,494.

ABC Company Borrows $P from XYZ Bank on March 3,2010