A promissory note for $10,000,dated July 1,2007,is due in four years with interest at j₂ = 8%.On October 1,2008,it was sold to an investor who discounted the note at j₄ = 9%.What was the purchase price of the note on October 1,2008?

Question

Quizplus · Accepted Answer

The correct answer is A because the purchase price of the note on October 1, 2008, is $10,714.46. This is calculated by discounting the face value of the note ($10,000) at the discount rate (j4 = 9%) for the time period between October 1, 2008, and the maturity date of the note (July 1, 2011).

A Promissory Note for $10,000,dated July 1,2007,is Due in Four