Ray Furniture wants to buy a dining room set for $7,000 with a 20% trade discount. Ray needs the cash to pay the bill and is considering discounting a 90-day note dated May 12, with a maturity value of $6,500 at Hunt Bank at a discount rate of 13% on June 5. The bank discount if Ray discounts the note is:

Question

Quizplus · Accepted Answer

The trade discount is 20%, so Ray Furniture will pay 80% of the original price:
0.8 x $7,000 = $5,600

Next, we need to calculate the bank discount:
Maturity value = $6,500
Discount rate = 13%
Time = 24 days (from May 12 to June 5)

Bank discount formula: BD = MV x r x t
where BD = bank discount, MV = maturity value, r = discount rate, and t = time in years

Converting 24 days to years:
24/365 = 0.0658

Plugging in the values:
BD = $6,500 x 0.13 x 0.0658
BD = $134.24

Therefore, the bank discount if Ray discounts the note is $134.24, which is closest to option C.

Ray Furniture Wants to Buy a Dining Room Set for $7,000