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%.
$2000*.09=$180 $180*6months= $1080
To find the discount and proceeds on a promissory note, we need to understand the concepts of discount, maturity, and interest.
The discount on a promissory note is the difference between the face value (also known as the principal or amount borrowed) and the proceeds (also known as the amount received). It represents the interest that the lender (in this case, First State Bank) earns for advancing the loan.
The maturity date is the date when the note becomes due and payable. In this case, it is August 10, 2007.
The interest on a promissory note is calculated using the simple interest formula:
Interest = Principal * Rate * Time
Let's use this information to calculate the discount and proceeds:
1. Calculate the time (in days) from the date the promissory note was made (February 10, 2007) to the maturity date (August 10, 2007):
- February has 28 days, March has 31 days, April has 30 days, May has 31 days, June has 30 days, July has 31 days, and August has 10 days.
- Total days = 28 + 31 + 30 + 31 + 30 + 31 + 10 = 191 days.
2. Convert the time from days to a year (as the discount rate is given as an annual rate):
- As there are 365 days in a year, divide 191 by 365: 191/365 ≈ 0.523.
3. Calculate the discount:
- Discount = Principal * Rate * Time
- Discount = $2,000 * 0.09 * 0.523 ≈ $93.38.
4. Calculate the proceeds:
- Proceeds = Principal - Discount
- Proceeds = $2,000 - $93.38 ≈ $1,906.62.
Therefore, the discount on the promissory note is approximately $93.38, and the proceeds are approximately $1,906.62.