Question

Use the following to answer questions 23 – 25 The company invested $100,000 on October 1, 20XA at 4.5% simple interest for 2 years (24 months). 23. $ Determine interest revenue for 20XA 24.$. Determine interest revenue for 20XB 25. $ _Determine interest revenue for 20xC Use the following to answer questions 26 - 27 The company invested $500,000 on November 1, 20XA at 6% simple interest for 10 months. 26. $ _Determine interest revenue for 20XA 27.$ Determine interest revenue for 20XB

Answer 1

23.

Answer: 1,125

There are 3 months in 20XA, since 1^st October to 31^st December is a gap of 3 months.

Interest revenue = Investment × Rate of interest × (Number of months / Months in a year)

                           = 100,000 × 4.5% × (3 / 12 =) 0.25

                           = $1,125

24.

Answer: 4,500

In the year 20XB, the investment get full year for earning revenues; therefore, there is no need of month calculation, since the rate of interest is for the whole year.

Interest revenue = Investment × Rate of interest

                           = 100,000 × 4.5%

                           = $4,500

25.

Answer: 3,375

In the year 20XC, there are 9 months left for maturity of the investment; the gap of 1^st January to 31^st August is 9 months.

Interest revenue = Investment × Rate of interest × (Number of months / Months in a year)

                           = 100,000 × 4.5% × (9 / 12 =) 0.75

                           = $3,375

26.

Answer: 5,000

There are 2 months (November and December) during the year.

Interest revenue = Investment × Rate of interest × (Number of months / Months in a year)

                           = 500,000 × 6% × 1/6

                           = $5,000

27.

Answer: 20,000

Since 2 months have gone in the previous year, there are only (10 – 2 =) 8 months left in 20XB.

Interest revenue = Investment × Rate of interest × (Number of months / Months in a year)

                           = 500,000 × 6% × 8/12

                           = $20,000