What Is the Adjustment to Interest Income on December 31

question 25

Multiple Choice

What is the adjustment to Interest Income on December 31 if Pristine Company (the holder of the note) receives a $26,000, 90-day, 7% note on December 10th from Elegant Company (debtor) ? (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.)

• A) $455
• B) $1,820
• C) $111
• D) $106

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Definitions:

Factor Risk

The risk associated with specific factors that can affect the returns on an investment, such as changes in interest rates, stock market volatility, or inflation.

Nonfactor Risk

Nonfactor Risk, also known as specific or idiosyncratic risk, is the part of an asset's risk that is not correlated with overall market movements and is unsystematic.

Security Market Line

A graphical representation in the Capital Asset Pricing Model that shows the relationship between the expected return of an investment and its beta, representing risk.

APT

Stands for Arbitrage Pricing Theory, a model that predicts a security's returns using the linear relationship between its expected return and macroeconomic factors.