on may 12, Scott accepted an $8000, 12%, 90 day note for a time extension of a bill for goods bought by ron. On june 12, scott discounted the note at able bank at 10% What proceeds does scott receive
8104.96
To calculate the proceeds Scott receives from discounting the note at Able Bank, we will follow the steps involved in discounting a note.
Step 1: Calculate the maturity value of the note
The maturity value is the sum of the principal (the original amount) and the interest accrued over the 90-day period.
Principal amount (P) = $8000
Interest rate (R) = 12% per annum
Time (T) = 90 days
To convert the time from days to a fraction of a year, we divide 90 by 360 (since there are 360 days in a year for interest calculation purposes):
T in years = 90 / 360 = 1/4
Interest accrued (I) = P * R * T
I = $8000 * 0.12 * 1/4 = $240
Maturity value = P + I
Maturity value = $8000 + $240 = $8240
Step 2: Calculate the proceeds received from discounting the note
The proceeds received will be a discounted value of the maturity value. The discount is based on the interest Scott would have earned if he held the note until maturity.
Discount rate (D) = 10%
Discount (D) = Maturity value * D
Discount = $8240 * 0.10 = $824
Proceeds received = Maturity value - Discount
Proceeds received = $8240 - $824 = $7416
Therefore, Scott receives $7416 as the proceeds from discounting the note at Able Bank.