[nmj012]

Godart Co. issued $4,500,000 notes payable as a scrip dividend that matured in five years. At maturity, each shareholder of Godart’s three million shares will receive payment of the note principal plus interest. The annual interest rate was 10%. What amount should be paid to the stockholders at the end of the fifth year?
A. $ 450,000
B. $4,500,000

C. $2,250,000

D. $6,750,000

The answer is D.

So I understand how they arrive at D, you calculate simple interest and add it to $4,500,000. However, I’m confused how we are supposed to know to use simple interest. Why wouldn’t we just find the future value of $4,500,000 at 10% for 5 years? Am I missing something?