The September 2003 issue of money stated that intrest rates have climbed to 5.99%. Nancy Martin, owner of Martins Textile Manfacturing, Supplied Dolan Limited with clothing worth 7353.00. The Terms of sale were 180-days and 5.4% intrest. Dolan Limited took possession of the order on March 3, 2004. On April 15th,2004, Nancy discovers she has a cash-flow problem; a bank agrees to discount the note at 5.99%. A) What is the bank discount amount? B) What amount would Nancy receive? Round to the nearest cent. We are using 360 days as well.
To find the bank discount amount and the amount Nancy would receive, we need to calculate the discount and subtract it from the original amount.
A) First, let's calculate the discount. The formula for calculating the bank discount is:
Bank Discount = Principal * Interest Rate * Time
Given:
Principal = $7,353.00
Interest Rate = 5.99%
Time = 45 days (from March 3, 2004, to April 15, 2004)
To convert the interest rate to a decimal, divide it by 100:
Interest Rate = 5.99% / 100 = 0.0599
To convert the time to a fraction of a year, divide it by 360 (since we are using 360 days):
Time = 45 days / 360 = 0.125
Now, we can calculate the bank discount:
Bank Discount = $7,353.00 * 0.0599 * 0.125
Bank Discount ≈ $55.011
The bank discount amount is approximately $55.01.
B) To find the amount Nancy would receive, we need to subtract the bank discount from the original amount:
Amount Nancy would receive = Principal - Bank Discount
Amount Nancy would receive = $7,353.00 - $55.01
Amount Nancy would receive ≈ $7,297.99
Therefore, Nancy would receive approximately $7,297.99.