Mountain Site discounts a customer's 10%,$7,000,90-day note dated August 1,on September 20.The discount period is 40 days,and the bank discount rate is 18%.The maturity value of the note is $7,175.The bank discount is $143.50.The proceeds of the note are:
A)$7,041.50.
B)$7,031.50.
C)$6,856.50.
D)$7,000.00.

Question

Quizplus · Accepted Answer

To calculate the proceeds of the note, we need to first find the amount due to the customer at maturity:
Maturity value = Note amount + Interest
$7,175 = $7,000 + Interest
Interest = $175

Next, we need to find the bank discount:
Bank discount = Note amount x Discount rate x Time
Bank discount = $7,000 x 0.18 x (40/360)
Bank discount = $143.50

The proceeds of the note is the amount due to the customer minus the bank discount:
Proceeds = Maturity value - Bank discount
Proceeds = $7,175 - $143.50
Proceeds = $7,031.50

Therefore, the answer is B, $7,031.50.

Mountain Site Discounts a Customer's 10%,$7,000,90-Day Note Dated August 1,on