Question

Innovative Engineering received a promissory note of $15,500 at 11% simple interest for 15 months from one of its customers. After 3 months, Union Bank discounted the note at a discount rate of 13%. Calculate the proceeds that Innovative Engineering will receive from the discounted note. (Round to the nearest cent)

Answer 1

Answer:

the procceds from the note will be as follows

$  15,099.56

Explanation:

We discount the note considering Union Bank discount rate not the note rate. as they are different. One is the yield of the promissory note if held until maturity while the other is the rate at which the bank will calcualte the discount.

first we solve for the amount at maturity:

15,000 x (1 + 0.11 x 15/12) = 17,062.5

NBow this amount will be discounted at 13%

$\frac{Maturity}{(1 + rate)^{time} } = PV$  

Maturity  $17,062.5000

time  1.00

rate  0.13000

$\frac{17062.5}{(1 + 0.13)^{1} } = PV$  

PV   15,099.5575