Question

# On May 12, Scott Rinse accepted an \$7,000, 12%, 90-day note for a time extension of...

On May 12, Scott Rinse accepted an \$7,000, 12%, 90-day note for a time extension of a bill for goods bought by Ron Prentice. On June 12, Scott discounted the note at Able Bank at 11%. (Use Days in a year table.)

What proceeds does Scott receive? (Use 360 days a year. Do not round intermediate calculations. Round your final answer to the nearest cent.)

#### Homework Answers

Answer #1

Step-1, Maturity Value

Maturity Value = Principal amount + Interest for 90 Days

= \$7,000 + [\$7,000 x 0.12 x (90 Days / 360 Days)]

= \$7,000 + [\$840 x (90 Days / 360 Days)]

= \$7,000 + \$210.00

= \$7,210.00

Step-2, Discount on Note

Discount Period = 59 Days (From May-12 to June-12)

Discount on Note = Maturity value x Discount rate x (Discount period / 360 Days)

= \$7,210.00 x 0.11 x (59 Days / 360 Days)

= \$793.10 x (59 Days / 360 Days)

= \$129.98

Step-3, Net Proceeds from the Note

Net Proceeds from the Note = Maturity Value – Discount on the Note

= \$7,210.00 - \$129.98

= \$7,080.02

Therefore, the Scott would receive \$7,080.02 from the Note

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