A long term promissory note is due on April 5,2013.The maturity value of the note on that date is $4720.56.On June 7,2010,the holder of the notes sells it to a bank who discounts the note at j₂ = 14%.Using the practical method of crediting/charging interest,calculate the proceeds of the sale.

Question

Quizplus · Accepted Answer

The proceeds of the sale can be calculated by discounting the maturity value of the note back to the sale date using the given discount rate. The time between June 7, 2010, and April 5, 2013, is 2 years, 9 months, and 28 days, or approximately 2.825 years. Using the formula for discounting, Proceeds = Maturity Value / (1 + rt), where r is the annual discount rate (14% or 0.14) and t is the time in years (2.825), we get Proceeds = $4720.56 / (1 + 0.14 * 2.825) = $4720.56 / 1.3955 ≈ $3221.52.

A Long Term Promissory Note Is Due on April 5,2013