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March 30, 2017

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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

  • math - ,

    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.

  • math - ,

    8104.96

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