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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
6. $16,800 10 June 3 80 Aug. 22 $373.33 $16,426.67

To determine

To calculate: The amount of bank discount, proceeds value and maturity date using the ordinary interest method where face value is $16,800, discount rate is 10%, date of note is 3 June and time period is 80 days.

Explanation

Given Information:

Face value is $16,800, discount rate is 10%, date of note is 3 June and time period is 80 days.

Formula used:

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 valuebank discount

Steps for determining maturity date are:

Step1. Calculate the number of days that are left in the month in which loan was 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 that face value of loan is $16,800, discount rate is 10% and time period is 80 days.

Simplify the discount rate as,

10%=10100=0.1

Evaluate the time using the ordinary interest method,

Time=Number of days of a loan360=80360

Compute the amount of bank discount by substituting $16,800 for face value, 0.1 for discount rate and 80360 for time in the formula, “Bank Discount=Face value×Discount Rate×Time

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