A 6-month non-interest bearing promissory note with a face value of $2500 is taken out on Jan.5,2007.What are the proceeds on Feb.12,2007 if the note is discounted using a simple interest rate of r = 10%?
A)$2380.02
B)$2403.85
C)$2405.75
D)$2497.40

Question

Quizplus · Accepted Answer

To find the proceeds, we need to discount the face value of the note using simple interest for the time period between January 5, 2007 and February 12, 2007. Since we are given an interest rate of 10%, we first need to determine the time period in terms of a fraction of a year.

From January 5, 2007 to February 12, 2007, there are 38 days. We divide this by the number of days in a year (365) to get:

38/365 = 0.1041

So the time period is approximately 0.1041 years.

Now we can calculate the interest:

I = Prt
I = $2500 x 0.10 x 0.1041
I = $26.00

The proceeds are the face value minus the interest:

Proceeds = Face value - Interest
Proceeds = $2500 - $26.00
Proceeds = $2403.85

Therefore, the answer is B.

A 6-Month Non-Interest Bearing Promissory Note with a Face Value