JAB Consulting received a promissory note of $18,500 at 8% simple interest for 15 months from one of its customers. After 6 months, Grove Isle Bank discounted the note at a discount rate of 5% Calculate the proceeds that JAB Consulting will receive from the discounted note.
JAB Consulting received a promissory note of $18,500 at 8% simple interest for 15 months from one of its customers. After 6 months, Grove Isle Bank discounted the note at a discount rate of 5% Calculate the proceeds that JAB Consulting will receive from the discounted note.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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JAB Consulting received a promissory note of $18,500 at 8% simple interest for 15 months from one of its customers. After 6 months, Grove Isle Bank discounted the note at a discount rate of 5% Calculate the proceeds that JAB Consulting will receive from the discounted note.
Step 1
When a promissory note is sold before maturity, it is said to be discounted. The maturity value represents the total amount of money a promissory note will be worth after interest has accrued.
The maturity value is calculated as follows where the rate is expressed as a decimal and the time is a fraction whose numerator is the given amount of time in months and denominator is 12 months.
maturity value = principal(1 + rate ✕ time)
The rate was given to be 8%. As a decimal, we have
8% = .
Find the maturity value (in $) for the promissory note of $18,500 at 8% interest for 15 months.
maturity value | = | principal(1 + rate ✕ time) | ||||
= | 18,500
|
|||||
= | $ |
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