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Using the convention that every year has 360 days, what is the interest earned on a $1,000 note at 12% per annum for a 60-day term?
A$120
B$20
C$60
D$12
Answer & Solution
Correct answer: B. $20
1. Interest = Principal x Rate x Time.
2. $$\$1{,}000 \times 12\% \times \frac{60}{360} = \$20$$
3. $120 ignores the pro-rating and applies the full annual rate.
4. $60 and $12 misapply the day fraction, so both are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.3.2 "Maturity (Due) Date", p.134_
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