Find the discount (ordinary interest) and proceeds on a promissory note for $2,000 made by Barbara Jones on February 10, 2007, and payable to First State Bank on August 10, 2007, with a discount rate of 9%.
P = Po - Po*r*t
P = 2000 - 2000*(0.09/360)*181
P = 2000 - 90.50 = $1909.50 = Proceeds.
Discount = $90.50
To find the discount and proceeds on a promissory note, we need to calculate the ordinary interest.
To calculate the ordinary interest, we'll use the following formula:
Ordinary Interest = Principal * Rate * Time
Where:
- Principal is the initial amount of the promissory note ($2,000 in this case)
- Rate is the discount rate (9% in this case)
- Time is the time period in years
First, let's calculate the time period between February 10, 2007, and August 10, 2007.
To calculate the time, we'll use the following formula:
Time = (End Date - Start Date) / 365
Let's calculate the time:
End Date: August 10, 2007
Start Date: February 10, 2007
Time = (August 10, 2007 - February 10, 2007) / 365
Time = 6/365 years
Now, let's calculate the ordinary interest:
Ordinary Interest = $2,000 * 9% * (6/365)
Ordinary Interest = $2,000 * 0.09 * (6/365)
Ordinary Interest = $32.79
The ordinary interest is $32.79.
To find the discount, we subtract the ordinary interest from the principal:
Discount = Principal - Ordinary Interest
Discount = $2,000 - $32.79
Discount = $1,967.21
The discount is $1,967.21.
Finally, to find the proceeds, we subtract the discount from the principal:
Proceeds = Principal - Discount
Proceeds = $2,000 - $1,967.21
Proceeds = $32.79
The proceeds on the promissory note are $32.79.