On May 12, Bob Campbell accepted a $5,000 note in granting a time extension of a bill of goods bought by Rick Ween. Terms of the note were 8% for 120 days. On July 8, Bob needed to raise cash and discounted the note at Rick's bank at a discount rate of 9%. Calculate Bob's proceeds.
I am getting 2 different answers...please show how you get your answer.
To calculate Bob's proceeds, we need to determine the discount and calculate the discounted amount.
1. Calculate the discount:
Discount = Face Value of Note x Discount Rate x Time
Time = (Discount Date - Acceptance Date) / Number of Days in a Year
Acceptance Date: May 12
Discount Date: July 8
Number of Days in a Year: 365
Time = (58 days) / 365 = 0.1589
Discount = $5,000 x 0.09 x 0.1589 = $71.505
2. Calculate the discounted amount:
Discounted Amount = Face Value of Note - Discount
Discounted Amount = $5,000 - $71.505 = $4,928.495
Therefore, Bob's proceeds are $4,928.495 (rounded to the nearest cent).
To calculate Bob's proceeds, we need to determine the discount on the note and subtract that from the face value.
First, let's calculate the discount on the note.
Discount amount = Face value * Discount rate * Time
Face value = $5,000
Discount rate = 9% (0.09)
Time = Number of days / 365 (assuming a year consists of 365 days)
Number of days = July 8 - May 12 = 57 days
Time = 57 / 365 ≈ 0.156
Discount amount = $5,000 * 0.09 * 0.156 = $702
Now, let's calculate Bob's proceeds.
Proceeds = Face value - Discount amount
Proceeds = $5,000 - $702 = $4,298
Hence, Bob's proceeds from discounting the note at Rick's bank is $4,298.