Calculating Interest and the Maturity Value of Notes Okay, today we’re talking about calculating the interest and maturity value on notes. Just to give you a little background, a note is a written promise to pay a certain amount in the future on a specific date, with interest. Notes can be either receivables or payables to the company, because other companies or other people can owe notes to the company, or the company may have other parties that they owe money to in the form of a note. So, if it’s owed to them it would be an account receivable or notes receivable on the balance sheet, and if it’s money that they owe to someone else it would be a notes payable. Also, the time period that it’s owed back in, if it’s a note that’s less than a year, it would be a shortterm note and a current asset, or if it’s a liability because if it’s owed, it would be a current liability. If it’s more than a year, it’s going to be long-term, a long-term asset or a long-term liability depending on if it’s owed to the company or if the company owes it to someone else. To calculate interest is very simple. We just take the principle, or face amount, meaning the amount that’s borrowed, times the interest rate, times the time. Okay, let’s look at each one of these individual notes. You should also, (if you’ve downloaded your handout) find the information on that as well. The date of the note, the first note here is January 1st; the face amount is $10,000; the interest rate is 12% and its due in 30 days. So, let’s go through it to calculate the interest. To get the interest we’re going to take the $10,000 times the 12% which will give us $1200, and then we are going to multiply that by 30 days over 360 days. You see, notes are, the interest here with the equation is a year, and so if it’s less than a year, we take it as a fraction. I know there’s 365 days in a year, but for the purpose of calculating notes, 360 days are the amount of days that are used. So, if we take that $1200 times 30 over 360, we should get $100. Okay, going on down to the next one. It’s dated February 1st. The face amount or principle is $15,000 at 10% for 30 days. So, if we take the $15,000 times 10%, that’s going to give us $1500, and you don’t even have to take that out of your calculator, and you can put in the 30 over 360 which is going to give us $125, and then going down to the last note here; it’s dated November 15th. The face amount is $6,000 and the interest rate is 8%. So if we take that $6,000 times 8%; that is going to give us $480, and then if we multiply that times 60 days over 360 we should get $80 and that is our interest. Another thing, when we’re looking at notes, is the term maturity value. Maturity value simply means principle amount plus the interest, what is, what is due on the due date when the note matures. So if we go back up to this first note, it’s due, it was a $10,000 note and there was $100 interest, so the maturity value in 30 days would be $10,100. The next note is $15,000 with $125 in interest, so that will be $15,125, would be the maturity value, and the next note down here is $6,000 with the interest of $80, so the maturity value would be $6,080. Okay the last thing I want to do is look at, what is the specific date that that note is due on, and how do we calculate that? Sometimes it’s not as easy as it might look. Okay, for this first one, January 1st, this is a 30 day note and January has 31 days. If you don’t know that you can look at a calendar. So, if we add thirty days to January the 1st, we come up with January 31st as being the due date. But, let’s look at this next one. It’s dated February 1st, and it’s also a 30 day note, but how many days are there in February? There’s 28 days in February, unless it’s leap year and then there’s 29. So, if it’s dated February 1st and it’s not a leap year, (I guess I’ll just come down here to do this) we would take the February 28th minus February 1st and that gives us the number of

days until the end of February. Well, now we’ve gone to 27 days so how many days do we need to go into March before this is due? Thirty minus 27 gives us 3, so this note would be due on March 3rd. Okay, there’s one more note down here. It’s dated November 15th, and it’s a 60 day note. So, now we need to know the number of days in November and December, and it looks like it’s going to cross over into January. November, if you look at your calendar, has 30 days, so if we take the 30 days, the November 30 minus the 15 days, which was the day it was dated; there’s 15 days it’s going to be in November, then we’ll go on into December, and December has 31 days. If you don’t remember that, you can look it up on your calendar. I remember it well, probably because I’ve had too many New Year’s parties. Alright, so we’ll add 31 days here, but we still, you can see just by eyeballing it, we still have not reached the 60 days. So, if we add these two together, we get 46. Going on we’re going to be going on into the New Year which is January. If we take 60 minus 46, that gives us 14 days, so this note will be due January 14th. I hope that this has helped you to, with this particular topic. It’s really a very simple process to calculate interest and the maturity value of notes.