Q: A business takes out a simple interest loan of $$8,000 at an annual rate of 7% for 9 months. What is the total interest paid on the loan? Use I = $$PRT$$ with T$ in years.

$$I = 8,000 \times 0.07 \times \frac{9}{12} = 420$$

Q: A $$10,000 simple discount note is issued for 6 months at a discount rate of 8%. What is the bank discount B$? Use B = M$$ \times D \times T$.

$$B = 10,000 \times 0.08 \times \frac{6}{12} = 400$$

Q: Sheila signs a 120-day note at 9% for $$7,725. What is the principal P$? Use M = P(1 + RT$$)$$ with T$ in years.

$$P = \frac{7,725}{1 + 0.09 \times \frac{120}{360}} = 7,500$$

Q: A $$12,000 loan is discounted at 9% for 10 months. What is the principal P$ received by the borrower? Use B = M$$ \times D \times T$$ and P = M - B$.

$$P = 12,000 - (12,000 \times 0.09 \times \frac{10}{12}) = 11,100$$

Q: A company borrows $$5,000 at 8.5% for 150 days. What is the interest I$ owed at maturity? Use I = $$PRT$$ with T$ in years.

$$I = 5,000 \times 0.085 \times \frac{150}{360} = 177.08$$

Q: A $$6,000 simple discount note is issued for 300 days at 9%. What is the discount B$? Use B = M$$ \times D \times T$$ with T$ in years.

$$B = 6,000 \times 0.09 \times \frac{300}{360} = 450$$

Q: A business signs a promissory note for $$4,600 at 11% for 90 days. What is the interest I$? Use I = $$PRT$$ with T$ in years.

$$I = 4,600 \times 0.11 \times \frac{90}{360} = 126.50$$

Question 1

Which of the following pieces of information is NOT typically required on a promissory note?

Accepted Answer

The borrower's social security number

Question 2

A business takes out a simple interest loan of $$8,000 at an annual rate of 7% for 9 months. What is the total interest paid on the loan? Use I = $$PRT$$ with T$ in years.

Accepted Answer

$$I = 8,000 	imes 0.07 	imes \frac{9}{12} = 420$$

Question 3

If a promissory note is signed on March 15 for 120 days, what is the due date? (Assume a 360-day year and use the method described in the study materials.)

Accepted Answer

July 13

Question 4

A $$10,000 simple discount note is issued for 6 months at a discount rate of 8%. What is the bank discount B$? Use B = M$$ 	imes D 	imes T$.

Accepted Answer

$$B = 10,000 	imes 0.08 	imes \frac{6}{12} = 400$$

Question 5

Sheila signs a 120-day note at 9% for $$7,725. What is the principal P$? Use M = P(1 + RT$$)$$ with T$ in years.

Accepted Answer

$$P = \frac{7,725}{1 + 0.09 	imes \frac{120}{360}} = 7,500$$

Question 6

A $$12,000 loan is discounted at 9% for 10 months. What is the principal P$ received by the borrower? Use B = M$$ 	imes D 	imes T$$ and P = M - B$.

Accepted Answer

$$P = 12,000 - (12,000 	imes 0.09 	imes \frac{10}{12}) = 11,100$$

Question 7

Which formula correctly calculates the future value $$M of a $$simple interest note?

Accepted Answer

$$M = P(1 + RT)$$

Question 8

A company borrows $$5,000 at 8.5% for 150 days. What is the interest I$ owed at maturity? Use I = $$PRT$$ with T$ in years.

Accepted Answer

$$I = 5,000 	imes 0.085 	imes \frac{150}{360} = 177.08$$

Question 9

If a promissory note is paid off before the due date, what happens to the interest owed?

Accepted Answer

The interest is reduced because it is calculated only for the time the money was borrowed.

Question 10

A $$6,000 simple discount note is issued for 300 days at 9%. What is the discount B$? Use B = M$$ 	imes D 	imes T$$ with T$ in years.

Accepted Answer

$$B = 6,000 	imes 0.09 	imes \frac{300}{360} = 450$$

Question 11

Which of the following best describes a simple discount note?

Accepted Answer

A note where the interest is deducted from the principal at the time the loan is made.

Question 12

A business signs a promissory note for $$4,600 at 11% for 90 days. What is the interest I$? Use I = $$PRT$$ with T$ in years.

Accepted Answer

$$I = 4,600 	imes 0.11 	imes \frac{90}{360} = 126.50$$

Question 13

Which of the following is the correct formula to find the principal $$P of a $$simple interest note if the maturity value $$M$$, rate $$R$$, and time $$T$$ are known?

Accepted Answer

$$P = \frac{M}{1 + RT}$$

Question 14

A $$8,500$$ simple discount note is issued for $$300$$ days at $$9\%. $$What is the principal $$P$$ received by the borrower? Use $$B = M 	imes D 	imes T$$ and $$P = M - B.$$

Accepted Answer

$$P = 8,500 - (8,500 	imes 0.09 	imes \frac{300}{360}) = 7,720.83$$

Question 15

Which of the following best explains why banks use a 360-day year for interest calculations on promissory notes?

Accepted Answer

It simplifies calculations and is a standard banking convention.

Simple Interest and Discount Notes in Business Mathematics

Study Guide - Practice Questions

Study Guide - Flashcards