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Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2021. The notes included:

Note A: Dated 5/31/2021, principal of $128,000 and interest due 3/31/2022.

Note B: Dated 7/1/2021, principal of $215,000 and interest at 9% annually, due on 4/1/2022.

Frankenstein had accrued a total of $15,600 interest receivable from these notes in its 12/31/2021 balance sheet.

The annual interest rate on Note A is closest to:

A) 8.54%

B) 7.94%

C) 9.00%

D) 8.24%

Respuesta :

Answer:

option (B) 7.94%

Explanation:

Given:

Principal for Note A = $128,000

Timer period for note A = 5/31/2021 to 12/31/2021 = 7 months = [tex]\frac{7}{12}[/tex] years

Principal for Note B = $215,000

Timer period for note B = 7/1/2021 to 12/31/2021 = 6 months = [tex]\frac{6}{12}[/tex] years

Interest rate for Note B = 9%

Therefore,

Total interest for Note B = Principal × Interest rate × Time period

= $215,000 × 0.09 × [tex]\frac{6}{12}[/tex]

= $9,675

Thus interest on Note A = Total interest - Interest on Note B

= $15,600 - $9,675

= $5,925

Also,

Total interest for Note A = Principal × Interest rate × Time period

$5,925 = $128,000 × Interest rate × [tex]\frac{7}{12}[/tex]

Interest rate = 0.07935 ≈ 0.0794

or

= 0.0794 × 100% = 7.94%

Hence,

The answer is option (B) 7.94%

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