Question

On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank’s discount rate is 8%.
How much cash will Dower receive from the bank on March 31?

Answer 1

Answer:

Dower will receive $30,856

Explanation:

on March 31 the bank will discount the future value of the note at 8% discount rate:

principal x (1 + rate x time ) = future value of the note

30,000 x (1 + 0.06 x 3/12*) = 30,450

Now, we solve for the discounte value at march 31 using an 8% discount rate:

30,450 x (1 - 0.08 x 2/12) = 30.856

*From Feb 28th to May 31th we have a 3-month period

**we have two month-lapse between maturity and discount date