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A $1,000 note at 12% matures after 60 days and, instead of paying, the customer issues a fresh note for the principal plus interest. Using a 360-day year, what is the face value of the new note?
A$1,000
B$1,020
C$1,120
D$1,037
Answer & Solution
Correct answer: B. $1,020
1. Interest on the first note = $$\$1{,}000 \times 12\% \times \frac{60}{360} = \$20$$
2. The new note rolls up principal + interest = $1,000 + $20 = $1,020.
3. $1,000 ignores the accrued interest now capitalised into the note.
4. $1,120 applies the full annual rate; $1,037 belongs to a later second-note calculation. Both are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.3.2 "Maturity (Due) Date", p.135_
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