Israel signed a simple discount promissory note for $15,000. The discount rate is 7.5%, and the term of the note is 120 days. What are Israel’s proceeds on the loan?
To calculate Israel's proceeds on the loan, we need to find the amount that Israel will receive after the discount is applied.
The formula to find the proceeds of a discount promissory note is:
Proceeds = Principal - Discount
Given:
Principal (P) = $15,000
Discount Rate (R) = 7.5% or 0.075
Term (T) = 120 days
Now, we can calculate the discount (D) using the formula:
Discount = Principal x Rate x Time
Substituting the values:
Discount = $15,000 x 0.075 x (120/365)
Discount ≈ $616.44
Now, we can calculate the proceeds:
Proceeds = Principal - Discount
Proceeds = $15,000 - $616.44
Proceeds ≈ $13,383.56
Therefore, Israel's proceeds on the loan will be approximately $13,383.56.
To calculate Israel's proceeds on the loan, we need to understand the concept of a simple discount promissory note.
A simple discount promissory note is a financial instrument used to raise funds. It is typically issued by a borrower (in this case, Israel) to a lender. The note states that the borrower promises to pay the lender a specified amount (in this case, $15,000) at a future date (in this case, 120 days). However, there is a discount rate applied, which represents the interest payable in advance.
Now, let's calculate Israel's proceeds on the loan using the following formula:
Proceeds = Principal - Discount
Given:
Principal = $15,000
Discount Rate = 7.5%
Term of Note = 120 days
Step 1: Calculate the discount amount.
Discount = Principal * Discount Rate * (Term/360)
= $15,000 * 0.075 * (120/360)
= $15,000 * 0.075 * 0.3333
= $375
Step 2: Calculate the proceeds.
Proceeds = Principal - Discount
= $15,000 - $375
= $14,625
Therefore, Israel's proceeds on the loan would be $14,625.
Ar = Ab - Ad.
Ar = 15000 - 15000*(0.075/360)*120 = $14,625 = Amt. received(proceeds).
Ar = Amount received.
Ab = Amount borrowed.
Ad = Amount discounted.