Question

On May 15, Maynard Co. borrowed cash from Texas Bank by issuing a 90-day note with a face amount of $45,600. Assume a 360-day year. Required: a. Determine the proceeds of the note, assuming the note carries an interest rate of 8%. $ b. Determine the proceeds of the note, assuming the note is discounted at 8%.

Answer 1

Answer:

a. $45,600        

b. $45,296

Explanation:

The computation is shown below:

a. The proceed of the note is always equal to the face amount i.e $45,600        

b. After considering the discounted rate, the proceed of the note is

= ($45,600) - ($45,600 × 8% × 30 days ÷ 360 days)

= $45,600 - $304

= $45,296

After considering the discount rate and the issuing days, the proceed of the note could come