On July 8,2014,Josephine lends Joni $10,000.Joni gives Josephine a 90-day non-interest bearing promissory note with face amount $10,000.On August 12,2014,Josephine sells the note to a finance company that uses a simple interest rate r = 5%.What are the proceeds received by Josephine?

Question

Quizplus · Accepted Answer

The first step is to calculate the maturity value, which is the face amount plus interest for 90 days at 5% simple interest.
Maturity value = $10,000 + ($10,000 x 5% x 90/360) = $10,125
The finance company will pay Josephine the present value of the note, which is the maturity value discounted for 43 days at 5%.
Present value = $10,125 / (1 + 5% x 43/360) = $9,921.17
Therefore, the proceeds received by Josephine will be $9,921.17.

On July 8,2014,Josephine Lends Joni $10,000