Question

Find the proceeds of a promissory note with a maturity value of $1800 due on September 30, 2018, discounted at 8.5% compunded semi-anually on March 31, 2015

Answer 1

According to given information

The maturity value of promissory note = $1800

The rate of interest = 8.5% = 8.5/100 = 0.085

And the note period is from March 31,2015 to September 30^th 2018

That means 42 months which means 3.5 years.

Now we need to find the compound interest formula

A = P(1+(r/n))^nt

Here A = maturity value = $1800

Rate of interest r = 0.085

N = compounding frequency which is semi annually so = 2

T is number of years = 3.5

1800 = P(1 + (0.085/2))^2(3.5)

1800 = P(1+0.0425)⁷

1800 = P(1.0425)⁷

1800 = P(1.33823)

P = 1800/1.33823  = 1345.06 ~ 1345

So proceeds of promissory note = $1345