A promissory note has a face value of $4500 and it carries an interest rate of 8.73% for a period of 4 months (including the period of grace). It is sold 3 months before the legal due date.What is the present value of the note on the date of sale if money is worth 8.2%?
A) $4573.92
B) $4537.92
C) $4357.92
D) $4592.37
E) $4777.92

Question

Quizplus · Accepted Answer

First, we need to calculate the interest for the period of grace, which is 1 month (4 months - 3 months before sale).

Interest = face value x interest rate x time 
Interest = $4500 x 8.73% x (1/12) 
Interest = $32.89

Next, we need to calculate the present value of the note using the formula:

Present value = face value / (1 + interest rate x time)

Present value = $4500 / (1 + 8.2% x (4/12)) 
Present value = $4500 / 1.06467 
Present value = $4220.08

Finally, we need to subtract the interest for the period of grace from the present value:

Present value - Interest = $4220.08 - $32.89 
Present value - Interest = $4197.19

Therefore, the present value of the note on the date of sale is $4197.19, which corresponds to option B.

A Promissory Note Has a Face Value of $4500 and It