Posted by help on .
on may 12, Scott accepted an $8000, 12%, 90 day note for a time extension of a bill for goods bought by ron. On june 12, scott discounted the note at able bank at 10% What proceeds does scott receive
The present value P of the note, assuming it is risk free, two months before it is due, is given by
8000 = P (1 + 0.12/6) = 1.02 P
Therefore P = $7843.
I assumed simple interest without compouhding, to keep it simple.
Discounting the note 10% (presumably to account for risk and inconvenience) makes it worth 90% of that, or $7059.