Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2013. The notes included:Note A: Dated 5/31/2013, principal of $ 132,000and interest due 3/31/2014. Note B: Dated 7/1/2013, principal of $220,000 and interest at 8% annually, due on 4/1/2014. Frankenstein had accrued interest receivable from these notes of $16,000 in its 12/31/2013 balance sheet. What is the annual interest rate on Note A? a) 8.00%b) 9.35%c) 9.95%d) 9.65%

Question

Jairo Zuniga

Business

6 April, 18:07

Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2013. The notes included:Note A: Dated 5/31/2013, principal of $ 132,000and interest due 3/31/2014. Note B: Dated 7/1/2013, principal of $220,000 and interest at 8% annually, due on 4/1/2014. Frankenstein had accrued interest receivable from these notes of $16,000 in its 12/31/2013 balance sheet. What is the annual interest rate on Note A? a) 8.00%b) 9.35%c) 9.95%d) 9.65%

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Lilliana Ball · Answer 1

Option B ⇒ The annual interest rate on Note A is 9.35%.

Explanation:

Note B has an accrued interest for six months during 2013: $220,000 x. 08 x 6/12 = $8,800.

The remainder of the accrued interest, $7,200 ($16,000 - $8,800) was from Note A, which was held for seven months in 2013.

Therefore, we have the following: $132,000 x annual interest rate x 7/12 = $7,200.

Thus, the annual interest rate on Note A would be ($7,200/132,000) x 12/7 = 9.35%.

Option B ⇒ 9.35% is the correct answer.