Chapter 10.III, Problem 18RE

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

The following interest-bearing promissory notes were discounted at a bank by the payee before maturity. Use the ordinary interest method, 360 days, to calculate the missing information.

Face |
Interest |
Date of |
Term of |
Maturity |
Maturity |
Date of |
Discount |
Discount |
|||||||||||

Value |
Rate (%) |
Note |
Note (days) |
Date |
Value |
Discount |
Period (days) |
Rate (%) |
Proceeds |
||||||||||

18. 850 | June 7 | 125 | _____ | ____ | Sept. 3 | _____ | 16.5 | __________ |

To determine

**To calculate:** The maturity date, maturity value, discount period and proceeds of the promissory note where face value is

Explanation

**Given Information:**

Face value is

**Formula used:**

Steps for determining the maturity date of a loan 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.

The formula to calculate Maturity value is,

Where, *MV* is Maturity value, *P* is Principal Amount, *R* is the rate of interest, and *T* is the time duration.

Steps for determining number of days of a loan 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. Determine the number of days for next succeeding months.

Step3. Calculate the number of days that are left in the last month till the due date.

Step4. Add all the days calculated.

The formula to calculate the time for ordinary interest is,

The formula to compute the amount of bank discount is,

The formula to calculate amount of proceeds is,

**Calculation:**

Calculate the number of days that are left in the month when the loan was taken by subtracting the loan date from the number of days in the month as:

Subtract the number of days left that were left when the loan was taken from the total duration of the loan as:

In the month of July, August and September, there are

Now, total number of remaining days are

So, maturity date is October

Consider that principal amount is

Simplify the rate of interest as,

The principal amount is same as the face value.

Compute the maturity value by substituting

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