[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 get to D, they use simple interest to calculate the total interest paid. However, I’m confused how we are supposed to know to use simple interest AND why we wouldn’t just calculate the future value of $4,500,000 with 10% interest for 5 years. Am I missing something?