The interest on noninterest-bearing notes is the difference between its present value and its face amount at maturity.Group of answer choicesTrueFalse

The statement is True.

Explanation:

Noninterest-bearing notes, also known as zero-coupon notes, are financial instruments that do not pay periodic interest during their life. Instead, they are issued at a discount to their face value, and the interest earned is effectively the difference between the purchase price (present value) and the face amount that will be received at maturity.

For example, if a noninterest-bearing note has a face value of $1,000 and is purchased for$800, the difference of $200 represents the interest earned. This amount is realized at maturity when the note is redeemed for its full face value. Therefore, the interest can be calculated as follows:

$\text{Interest} = \text{Face Value} - \text{Present Value}$

In this case, it supports the claim that the interest on noninterest-bearing notes is indeed the difference between the present value and the face amount at maturity.