Question

1. Schell Publishing received a $70,000 promissory note at 12% ordinary interest for 60 days from one of its customers. After 20 days, Schell discounted the note at the bank at a discount rate of 14.5%. The note was made on March 21.

a. (What is the maturity date on the note?

b. What is the maturity value of the note?

c. What is the discount date of the note?

d. How many days is the discount period for?

e. What is the bank discount that the bank will receive?

f. What proceeds will Schell receive after discounting the note?

Answer 1

SOLUTION

A) Calculate the number of days left in the month of March after March 21st.

Days left in March = 31-21

= 10 days

Calculate the maturity date of the note.

= Current date + no of days of ordinary interest

= March 21st + 60 days (10 days in March)

= March 21st + (10 days in March) + (30 days in April) + (20 days in May)

= May 20th

Therefore, the maturity date is = May 20th

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B) Maturity value = A(1 + n*d%)

= $70,000*(1+0.12 * 60/360)

= $71,400

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C) The discount date is 20 days from the date the note was made

Discount date = March 21st + (20 days)

= April 10th

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F) Varsity Press receive after discounting the note

Amount received = A- [Ad1 % (n-20 / 360 )]

=$71,400 - $71,400 [ 0.145 * (40/360) ]

= $70,249

Therefore, the amount received by the varsity press after discounting the note is = $70,249