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Simple Discount Assignment

Mike borrowed $9,000 at 9% interest for 85 days. The effective interest rate on the loan was 9.19%. For simple interest and discount notes of $6,000 at 8% for 90 days, the interest charged and amounts received by borrowers and payees are the same. Jay Miller accepted a discounted note of $5,000 at 9% for 150 days and discounted it at 9%, receiving $4,880 in proceeds. Ryan Furniture considered discounting a 130-day note of $7,000 at 9% to get funds needed after a 5% cash discount on office equipment but would have fallen short, so they should not discount the note. Ron Jean bought a $10,000 Treasury

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Ahmed Badawi
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78 views3 pages

Simple Discount Assignment

Mike borrowed $9,000 at 9% interest for 85 days. The effective interest rate on the loan was 9.19%. For simple interest and discount notes of $6,000 at 8% for 90 days, the interest charged and amounts received by borrowers and payees are the same. Jay Miller accepted a discounted note of $5,000 at 9% for 150 days and discounted it at 9%, receiving $4,880 in proceeds. Ryan Furniture considered discounting a 130-day note of $7,000 at 9% to get funds needed after a 5% cash discount on office equipment but would have fallen short, so they should not discount the note. Ron Jean bought a $10,000 Treasury

Uploaded by

Ahmed Badawi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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1. Mike French borrowed $9,000 at 9% for 85 days.

Calculate Mike’s proceeds from this


simple discount note. Assume ordinary interest. What is the effective rate of interest to
the nearest hundredth percent?

P= $9,000

R= 9%/100 = 0.09

T= 85 days

B= $191.25

MV= $9,000

Pt= $9,000-$191.25 = $8,808.75

Effective rate = $191.25/$8,808.75x85/360 =

0.0919x100% = 9.19%

2. The face value of both a simple interest and a simple discount note are $6,000. If both
notes have interest rates of 8% for 90 days, calculate:
A. Amount of interest charged for each type of note.
B. Amount each borrower would receive.
C. Amount payee would receive at maturity

P= $6,000

R= 8%/100 = 0.08

T= 90 days

A. Simple interest (Interest charged) = $6,000 x 0.08 x 90/360 = $120

Simple Discount (Interest charged) = $6,000 x 0.08 x 90/360 = $120

B. Simple Interest (Proceeds) = $6,000

Simple Discount (Proceeds) = $6,000 - $120 = $5,880

C. Simple Interest (Maturity Value) = $6,000 + $120 = $6,120

Simple Discount (Maturity Value) = $6,000


3. On March 4 Jay Miller accepted a $5,000 note in granting a time extension of a bill for
goods purchased by Russ Sullivan. Terms of the note were 9% for 150 days. On June 8
Jay could no longer wait for the money and discounted the note at Ranger Bank at a
discount rate of 9%. Calculate Jay Miller’s proceeds.

P= $5,000

R= 9%/100 = 0.09

T= 150 days

B= $5,000 X 0.09 X 96/360 = $120

Pt= $5,000 - $120 = $4,880

4. Ryan Furniture wants to buy new office equipment for $8,000 with a 5% cash
discount. Ryan needs more cash to pay the bill and is considering discounting a
130-day note dated May 4 with a maturity value of $7,000 at Security Bank at a discount
rate of 9% on July 8. Should Ryan discount the note?

P = $7,000 *8,000x0.05=600

R= 9%/100 = 0.09

T= 130

B= $7,000 X 0.09 X 65/360 = $113.75

Pt = $7,000 - $113.75 = $6,886.25

Considering that he needs $7,400 = $8,000 - $600* to secure the new office equipment,
discounting the note would not get him the amount needed to purchase the equipment,
it would get him close enough to purchase it rather.

5. Ron Jean buys a $10,000 Treasury bill at 8% discount for 13 weeks. Calculate
purchase price and effective rate of interest to nearest hundredth percent.

P= $10,000

R= 8%/100 = 0.08

T= 13 weeks
I= $10,000 X 0.08 X 13/52 = $200

M= $10,000 + $200 = $10,200

Purchase price = $10,200/1+(.08X13/52) = $10,000

Effective rate = $200/$9,800X13/52 = 8.16%/100 = 0.816

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