The September 2003 issue of money stated that intrest rates have climbed to 5.99% Nancy Martin, owner of Martins Textile Manfacturing, supplied Dolan Limited with clothing worth 7353.00 The terms of sale were 180 days and 5.4% intrest. Dolan Limited took possession of the order on March 3, 2004. On April 15, 2004, Nancy discovers, she has a cash flow problem; a bank agrees to discount the note at 5.99% A) what is the bank discount amount? B What amount would Nancy Receive? Round to the nearest cent.

Question

The September 2003 issue of money stated that intrest rates have climbed to 5.99% Nancy Martin, owner of Martins Textile Manfacturing, supplied Dolan Limited with clothing worth 7353.00 The terms of sale were 180 days and 5.4% intrest. Dolan Limited took possession of the order on March 3, 2004. On April 15, 2004, Nancy discovers, she has a cash flow problem; a bank agrees to discount the note at 5.99% A) what is the bank discount amount? B What amount would Nancy Receive? Round to the nearest cent.

Answer 1

To solve this problem, we need to calculate the bank discount amount and the amount Nancy Martin would receive. Let's break it down step by step:

Step 1: Calculate the maturity date
The terms of sale are stated as 180 days from the date of possession, which is March 3, 2004. To find the maturity date, we add 180 days to March 3, 2004.
Maturity date = March 3, 2004 + 180 days = August 30, 2004

Step 2: Calculate the time in years from the note date to the maturity date
To calculate the time in years, we need to count the number of days from March 3, 2004, to August 30, 2004, and divide it by the number of days in a year (365 days).
Time in years = (August 30, 2004 - March 3, 2004) / 365 days

Step 3: Calculate the bank discount amount
The bank discount amount can be calculated using the formula:
Bank discount amount = Principal (P) * Interest Rate (R) * Time in years (T)

Given:
Principal (P) = $7,353.00
Interest Rate (R) = 5.99%

First, we need to convert the interest rate to a decimal by dividing it by 100:
Interest Rate (R) = 5.99% / 100 = 0.0599

Now we can calculate the bank discount amount:
Bank discount amount = $7,353.00 * 0.0599 * Time in years

Step 4: Calculate the amount Nancy Martin would receive
The amount Nancy Martin would receive is calculated using the following formula:
Amount received = Principal - Bank discount amount

Now, let's calculate the bank discount amount and the amount Nancy Martin would receive.

A) Bank discount amount:
Bank discount amount = $7,353.00 * 0.0599 * Time in years

B) Amount Nancy would receive:
Amount received = $7,353.00 - Bank discount amount

After calculating both A and B, round the amounts to the nearest cent for the final answers.