Question

Amy signs a note agreeing to pay Alex $900.00 with 7% compounded annually in two years. However, four months before the note matures, Brian buys the note from Alex discounting at 15% simple interest.

(a) Find the maturity value of the note.

(b) Compute the proceeds of the sale.
Show your detailed work.

Answer 1

a

Future value	FV=	PV × (1+r)^N
Where as:
Present value	PV=	900
Rate of interest	r=	7.00%
Number of years	N=	2.00
Future value	FV=	900 × (1+0.07)^2
	FV=	1,030.41

Maturity value is 1,030.41

b

Proceeds = 1,030.41/ (1+15%*4/12) = 1016.85