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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
7. $5,000 14.7 April 16 ___________ July 9 _________________ ____________

To determine

To calculate: The time duration of the simple discount notes, amount of bank discount and proceeds by using the ordinary interest method where face value is $5,000, discount rate is 14.7%, date of note is 16 April and maturity date is 9 July.

Explanation

Given Information:

Face value is $5,000, discount rate is 14.7%, date of note is 16 April and maturity date is 9 July.

Formula used:

Steps for determining number of days of a loan are:

Step1. Calculate the number of days left in the month in which loan was 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 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

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:

Number of days left=Total days in that monthLoan Date=3016=14

Determine the number of days for next succeeding months, that is, May and June.

31+30=61

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

Total number days in July till due date are 9.

Total number of days of loan can be computed by adding all the computed days as follows:

Total number of days of loan=14+61+9=84

Hence, the total number of days of the loan is 84.

Now, compute the amount of bank discount,

Simplify the discount rate as,

14.7%=14

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