32 Chapter 1 Simple Interest
On the day that the loan is to be repaid, we say the loan comes due and its note matures.
The date on which this happens is the maturity date and the total amount that must be
repaid is called the maturity value.Even though a note should provide all of this information, it is not necessary for a note to
explicitly spell out all of these items. For example, a note might read:Promissory Note
I, Jane Doe, acknowledge a loan of $1,000 made to me today,
April 22, 2006, by the Seventh National Bank of Idaho Falls,
and agree to repay this loan in 6 months together with simple
interest calculated at a rate of 12%.This note does not explicitly state the maturity date or maturity value. Yet the bank certainly
wouldn’t want that left up in the air! Even though these details aren’t stated, there is enough
information in this note for us to be able to figure out the maturity date by fast-forwarding
six months from April 22, 2006, to arrive at October 22, 2006. To find the maturity value we
can use I PRT to find that the interest should be $60, and then add that onto the principal
to arrive at a maturity value of $1060. Now, it might be nice if the note actually spelled out
these details explicitly, but as it stands there is no ambiguity or potential for misunderstand-
ing. In fact, you might not want to explicitly state the maturity value and date since it would
be redundant, and it would be giving the same information more than once too.
On the other hand, a note like this one is deficient:Promissory Note
This note acknowledges that John Smith has loaned Lisa Jones
$250 for 270 days and she hereby agrees to pay him back plus
interest.Like the first, this one does not explicitly spell out all the relevant details of the loan. But in
the first case there was enough information to figure out the missing details. The informa-
tion given in this note is inadequate—there are details missing that cannot be determined
from the information given. It is impossible to determine either the maturity date (it’s
270 days from the note’s date, but the date is not given) or the maturity value (since the
neither the interest amount nor the interest rate is known.)
While the specific format and contents of a note can vary, it should be clear that the details
that are given should provide enough information to determine all of the relevant details.Finding a Note’s Term from Its Dates
What about a note like this one?Promissory Note
On this date, March 28, 2007, the West Forklift Federal Credit
Union has loaned Spencer Van Etten $2800, which he agrees
to repay on October 13, 2007 together with simple interest of
9¾% per year.This note does not specify the maturity value, even though that amount would be quite
important to both Spencer and the credit union. However, we do know the principal and
the rate, and we could figure out the term by counting the days between March 28 and