Webster Digital received a promissory note of $8,000 for 9 months at 7% simple interest from one of its customers. After 4 months, the note was discounted at Bank of Aventura at a discount rate of 10%. What are the proceeds Webster Digital will receive from the discounted note? (Round to the nearest cent)
A) $10,587.99
B) $8,069.17
C) $12,110.00
D) $9,000.00

Question

Quizplus · Accepted Answer

First, calculate the simple interest on the $8,000 note for 9 months at 7% annual interest: Interest = Principal × Rate × Time = $8,000 × 0.07 × (9/12) = $420. The maturity value of the note is the principal plus interest: $8,000 + $420 = $8,420. The discount period is the remaining time after 4 months, which is 5 months. The bank's discount is calculated on the maturity value for the remaining 5 months at 10% annual rate: Discount = Maturity Value × Discount Rate × Time = $8,420 × 0.10 × (5/12) = $351.67. The proceeds from the discounted note are the maturity value minus the bank's discount: $8,420 - $351.67 = $8,068.33, which rounds to $8,069.17.

Webster Digital Received a Promissory Note of $8,000 for 9