A business issued a $9000, 120-day note to a supplier which discounted the note at 9%. The proceeds are:
To calculate the proceeds from the discounting of the note, we need to understand the concept of discounting. Discounting is a process in which a financial institution buys a note or other debt instrument before its maturity date, in exchange for an amount that is less than the face value of the note. The difference between the face value and the discounted amount is called the discount.
In this case, the business issued a $9000 note to a supplier and it was discounted at a rate of 9%. The term of the note is 120 days.
To calculate the discount, we need to calculate the amount of the discount first. The formula to calculate the discount is:
Discount = Face Value * Discount Rate * Time
where Face Value is the original amount of the note, Discount Rate is the rate at which the note is discounted, and Time refers to the term of the note in years.
In this case, the Face Value is $9000, the Discount Rate is 9%, and the Time is 120 days, which is equivalent to 120/365 years.
Discount = $9000 * 0.09 * (120/365)
Discount ≈ $295.07
The discount amount is approximately $295.07.
To calculate the proceeds, we subtract the discount from the face value:
Proceeds = Face Value - Discount
Proceeds ≈ $9000 - $295.07
Proceeds ≈ $8704.93
Therefore, the proceeds from discounting the note is approximately $8704.93.