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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Using ordinary interest, 360 days, calculate the missing information for the following simple discount notes.

Face Discount Date of Term Maturity Bank
Value Rate (%) Note (days) Date Discount Proceeds
10. $75,000 5 May 7 53 __________ __________ __________

To determine

To calculate: The amount of bank discount, proceeds value and maturity date where face value is $75,000, discount rate is 5%, date of note is 7 May and time period is 53 days.

Explanation

Given Information:

Face value is $75,000, discount rate is 5%, date of note is 7 May and time period is 53 days.

Formula used:

The formula to calculate the time for ordinary interest is,

Time=Number of days of a loan360

The formula to compute the amount of bank discount is,

Bank Discount=Face value×Discount Rate×Time

The formula to calculate amount of proceeds is,

Proceeds=Face valueDiscount

Steps for determining maturity date are:

Step1. Calculate the number of days that are left in the month loan is taken by subtracting the loan date from the number of days in the month.

Step2. Subtract the number of days remaining in the first month from the total duration of loan.

Step3. Keep on subtracting the days from consequent months until the maturity date corresponds to the difference.

Calculation:

Consider the face value of loan is $75,000, discount rate is 5% and time period is 53 days.

Compute the discount amount,

Simplify the discount rate as,

5%=5100=0.05

Evaluate the time as,

Time=Number of days of a loan360=53360

Substitute $75,000 for face value, 0.05 for discount rate and 53360 for time in the formula

Bank Discount=Face value×Discount Rate×Time” as,

Bank Discount=Face value×Discount Rate×Time=75000×0

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