Question

Which of the following statements is correct?

A long-term note’s fair value and present value are always the same.

There is no interest included in a zero-interest-bearing note.

A note is signed by the payee in favour of the maker.

All notes contain an interest element because of the time value of money.

Answer 1

All the notes consist interest element because of the time value of money. Although, theses notes are classified as interest bearing and non-bearing , both these notes consist of interest as part of the face value. Non-bearing interest notes consist of interest component on part of their face value. While interest bearing consists generally coupon interest rate on face value and may rarely even contain interest on face value.

Hence, correct option is All notes contain an interest element because of the time value of money.