a 2-month note for $4,500 was drawn on July 3 at 8%. If money is worth 9%, find the present value of the note on the day it was made.
To find the present value of the note on the day it was made, we need to discount the future value of the note by the interest rate.
Step 1: Calculate the future value of the note.
The note is a 2-month note, so it will mature in 2 months. Since the note is drawn on July 3, we can consider it as maturing on September 3. The future value of the note is $4,500.
Step 2: Calculate the discount rate.
The money is worth 9%, so that will be our discount rate. However, the note is drawn at 8% interest rate. Since the money is worth more than the interest rate on the note, we can consider this as a discount.
Step 3: Calculate the present value of the note.
To calculate the present value of the note, we can use the formula:
Present Value = Future Value / (1 + discount rate)^n
where n is the number of periods. In this case, since we are dealing with months, n = 2/12.
Present Value = $4,500 / (1 + 0.09)^(2/12)
Calculating this, we find:
Present Value = $4,435.65 (rounded to the nearest cent)
Therefore, the present value of the note on the day it was made is approximately $4,435.65.