Question

16. Equity Financial Corp. discounted the following two interest-bearing notes. Compute the missing information (use a 360-day year).

a.	Face Value	$6,800	b.	Face Value	$3,000
	Date of Note	April 16		Date of Note	October 28
	Interest Rate	10%		Interest Rate	9%
	Time to Run	105 days		Time to Run	45 days
	Discount Date	May 31		Discount Date	November 12
	Discount Rate	15%		Discount Rate	12%
	Interest Amount			Interest Amount
	Maturity Value			Maturity Value
	Maturity Date			Maturity Date
	Days of Discount			Days of Discount
	Discount Amount			Discount Amount
	Proceeds			Proceeds

Answer 1

Solution a:

Interest amount = $6,800 * 10%*105/360 = $198.33

Maturity value = $6,800 + $198.33 = $6,998.33

Maturity date = 16 April to 105 days = 30th July

Days of discount = From May 31 to 30th July = 60 days

Discount amount = $6,998.33 * 15%*60/360 = $174.96

Net Proceed = $6,998.33 - $174.96 = $6,823.37

Solution b:

Interest amount = $3,000 * 9%*45/360 = $33.75

Maturity value = $3,000 + $33.75 = $3,033.75

Maturity date = 28 October to 45 days = 12th December

Days of discount = From Nov 12 to 12th December = 30 days

Discount amount = $3,033.75 * 12%*30/360 = $30.34

Net Proceed = $3,033.75 - $30.34 = $3,003.41