Question

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.)

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