toby signed a simple discount promissory note for $20,000. the discount rate is 8.5%, and the term of the note is 90 days. what are toby's proceeds on the loan?
Ar = Ab - Ad
Ar = 20,000 - 20,000*(0.085/360)*90 =
20,000 - 425 = $19,575 = Amount received
(proceeds).
Ab = Amt. borrowed.
Ad = Amt. discounted.
To calculate Toby's proceeds on the loan, we need to deduct the discount from the face value of the promissory note. Here's the step-by-step calculation:
Step 1: Calculate the discount amount.
Discount Amount = Face Value of the Note * Discount Rate
Discount Amount = $20,000 * 8.5% = $1,700
Step 2: Deduct the discount amount from the face value of the note to get Toby's proceeds.
Proceeds = Face Value of the Note - Discount Amount
Proceeds = $20,000 - $1,700 = $18,300
Therefore, Toby's proceeds on the loan will be $18,300.
To calculate Toby's proceeds on the loan, we need to understand what a simple discount promissory note is and how it works.
A simple discount promissory note is a financial instrument where the borrower (in this case, Toby) promises to pay a specific amount (in this case, $20,000) to the lender (the entity providing the loan) at a future date (the term of the note, which is 90 days).
The discount rate (in this case, 8.5%) represents the interest rate that is deducted upfront from the loan amount. So, Toby will receive a reduced amount of money upfront, and at the end of the term, he will pay back the full amount of the note.
To calculate Toby's proceeds on the loan, we need to determine the amount he will actually receive. The formula for calculating the proceeds on a simple discount promissory note is:
Proceeds = Principal - (Principal x Discount Rate x Time)
Where:
- Principal is the initial amount of the note ($20,000)
- Discount Rate is the rate at which the loan amount is reduced (8.5%, or 0.085 as a decimal)
- Time is the term of the note in years (90 days in this case, so we need to convert it to years)
Let's calculate Toby's proceeds on the loan:
Step 1: Convert the term from days to years
Time = 90 days / 365 days (in a year) ≈ 0.24658 years
Step 2: Use the formula to calculate the proceeds
Proceeds = $20,000 - ($20,000 x 0.085 x 0.24658)
Proceeds = $20,000 - $418.92
Proceeds ≈ $19,581.08
Therefore, Toby's proceeds on the loan would be approximately $19,581.08.