The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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The total amount of interest compounded quarterly on a $2,000 note payable for one year at 8% is
A)$164.86.
B)$240.00.
C)$40.00.
D)None of these are correct.

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
-
The total amount of interest compounded quarterly on a $2,000 note payable for one year at 8% is
A)$164.86.
B)$240.00.
C)$40.00.
D)None of these are correct.

Quizplus · Accepted Answer

Using Table 9-1, we find that the quarterly interest rate for 8% annual rate is 2%. We then use Table 9-3 to find the factor for quarterly compounding for one year, which is 1.08329. To calculate the total interest, we multiply the principal ($2,000) by the factor and then subtract the original principal, which gives us $164.86.

The Solution to This Problem Requires Time Value of Money