A $6,500,12% note dated April 23 for 88 days was discounted on June 2 at 14%.The amount of the discount (using a 360-day year)is:
A)$780.00.
B)$190.67.
C)$124.89.
D)$115.56.

Question

Quizplus · Accepted Answer

Step 1: Find the maturity value of the note.

Maturity Value = Principal + Interest

Interest = Principal x Rate x Time 
Time = 88/360 year (using a 360-day year)

Interest = $6,500 x 12% x 88/360 = $212.22

Maturity Value = Principal + Interest = $6,500 + $212.22 = $6,712.22

Step 2: Find the discount.

Discount = Maturity Value x Discount Rate x Time 
Time = 40/360 year (using a 360-day year)

Discount = $6,712.22 x 14% x 40/360 = $124.89

Therefore, the amount of the discount is $124.89. The best choice is C.

A $6,500,12% Note Dated April 23 for 88 Days Was