On May 12, Bob Campbell accepted a $5,000 note in granting a time extension of a bill of goods bought by Rick Ween. Terms of the note were 8% for 120 days. On July 8, Bob needed to raise cash and discounted the note at Rick's bank at a discount rate of 9%. Calculate Bob's proceeds.
To calculate Bob's proceeds from the discounted note, we need to find the discounted value of the note first.
Step 1: Calculate the maturity date.
The note was accepted on May 12, and it has a term of 120 days. To find the maturity date, add 120 days to May 12.
Maturity Date = May 12 + 120 days = September 9.
Step 2: Calculate the time between the acceptance date and the discounting date.
The note was discounted on July 8. To find the time between May 12 and July 8, subtract May 12 from July 8.
Time Between = July 8 - May 12 = 57 days.
Step 3: Calculate the discount period.
The discount period is the time between the discounting date and the maturity date. To find the discount period, subtract July 8 from September 9.
Discount Period = September 9 - July 8 = 63 days.
Step 4: Calculate the discount amount.
To calculate the discount amount, multiply the face value of the note by the discount rate and the discount period, and divide by 360 (assuming a 360-day year).
Discount Amount = ($5,000 * 9% * 63) / 360 = $787.50.
Step 5: Calculate Bob's proceeds.
To find Bob's proceeds, subtract the discount amount from the face value of the note.
Bob's Proceeds = Face Value - Discount Amount = $5,000 - $787.50 = $4,212.50.
Therefore, Bob's proceeds from discounting the note at a discount rate of 9% is $4,212.50.