Question

Check My Work Dressed to a Tee received a promissory note of $8,000 for 10 months at 6% simple interest from one of its customers. After 5 months, the note was discounted at Grove Isle Bank at a discount rate of 8%. What are the proceeds Dressed to a Tee will receive from the discounted note

Answer 1

Answer:

$8,120

Explanation:

To calculate the proceeds, the gross proceed  less the discount charged by the bank. The gross proceed is the total amount that would have been received should the note is held to maturity.

Gross proceed= P + (P×R×T)

P- 8,000 R- 6%, T- 10/12

Gross proceed = (8,000 + 8,000× 6%× 10/12)

                         = $8,400

Discount charges = Gross proceed × discount rate × time to maturity

Time to maturity = 10 - 5 = 5 months

Discount rate - 8%, Time- 5/12

Discount charges =  8400× 5/12× 8% = $280

Proceeds to be received = $8,400 - $280

                 = $8,120