Use the ordinary interest method, 360 days, to solve the following word problem. Round to the nearest cent when necessary. Richie Powers is the owner of American Eagle Boats, a manufacturer of custom pleasure boats. Because of the economic recession and slow boat sales recently, American Eagle has begun accepting promissory notes from its dealers to help finance large orders. This morning American Eagle accepted a 90 day, 8.6% promissory note for $800,000 from one of its sales dealers. You are a manager for a bank, and Richie is one of your clients. Your bank's discount rate is currently 13%. Richie's goal is to discount the note as soon as possible, but not until the proceeds are at least equal to the face value of the note, $800,000. (a) As his banker, Richie has asked you to "run the numbers" at ten day intervals starting with day 20 and advise him as to when he can discount the note and still receive his $800,000. Find the bank discount (in $) for days 20, 30, and 40, and indicate for each discount whether it is too high or whether it is low enough for Richie to discount the note and still receive his $800,000. Day 20: --Select-- v Day 30: $ -Select-- v Day 40: Select-- v (b) (Challenge) Calculate the exact day the note should be discounted to meet Richie's goal.
Use the ordinary interest method, 360 days, to solve the following word problem. Round to the nearest cent when necessary. Richie Powers is the owner of American Eagle Boats, a manufacturer of custom pleasure boats. Because of the economic recession and slow boat sales recently, American Eagle has begun accepting promissory notes from its dealers to help finance large orders. This morning American Eagle accepted a 90 day, 8.6% promissory note for $800,000 from one of its sales dealers. You are a manager for a bank, and Richie is one of your clients. Your bank's discount rate is currently 13%. Richie's goal is to discount the note as soon as possible, but not until the proceeds are at least equal to the face value of the note, $800,000. (a) As his banker, Richie has asked you to "run the numbers" at ten day intervals starting with day 20 and advise him as to when he can discount the note and still receive his $800,000. Find the bank discount (in $) for days 20, 30, and 40, and indicate for each discount whether it is too high or whether it is low enough for Richie to discount the note and still receive his $800,000. Day 20: --Select-- v Day 30: $ -Select-- v Day 40: Select-- v (b) (Challenge) Calculate the exact day the note should be discounted to meet Richie's goal.
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
Problem 1PS
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![**Ordinary Interest Method Calculation for Promissory Note Discounting**
**Context:**
Richie Powers, the owner of American Eagle Boats, is dealing with financial adjustments during an economic recession, particularly in boat sales. Recently, American Eagle Boats accepted a 90-day, 8.6% promissory note for $800,000 to help finance large orders from dealers. Richie needs to determine the optimal timing to discount a note with your bank, which offers a 13% discount rate.
**Objective:**
As a banker assisting Richie, your task is to calculate the bank discount at 10-day intervals starting from Day 20, ensuring the proceeds meet or exceed the note's face value of $800,000.
**Instructions:**
(a) **Discount Calculation and Evaluation:**
- Calculate the bank discount in dollars for days 20, 30, and 40.
- Indicate whether the discount amount is too high or appropriate for Richie to discount and still receive $800,000.
- **Day 20:**
- Bank Discount: $ [Enter Amount]
- Evaluation: [Select "Too High" or "Appropriate"]
- **Day 30:**
- Bank Discount: $ [Enter Amount]
- Evaluation: [Select "Too High" or "Appropriate"]
- **Day 40:**
- Bank Discount: $ [Enter Amount]
- Evaluation: [Select "Too High" or "Appropriate"]
(b) **Challenge Task:**
- Calculate the precise day for the note discount to meet Richie's financial goal.
- **Exact Day Required:**
- Day: [Enter the exact day number]
Use these calculations and decisions to guide Richie in making a financially sound decision regarding the promissory note discount.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbf25cb98-8a11-4c21-ba85-92c0b2ab3853%2Ff92add79-5121-4cb1-bea5-c6b967973d5c%2Frrs4k1_processed.png&w=3840&q=75)
Transcribed Image Text:**Ordinary Interest Method Calculation for Promissory Note Discounting**
**Context:**
Richie Powers, the owner of American Eagle Boats, is dealing with financial adjustments during an economic recession, particularly in boat sales. Recently, American Eagle Boats accepted a 90-day, 8.6% promissory note for $800,000 to help finance large orders from dealers. Richie needs to determine the optimal timing to discount a note with your bank, which offers a 13% discount rate.
**Objective:**
As a banker assisting Richie, your task is to calculate the bank discount at 10-day intervals starting from Day 20, ensuring the proceeds meet or exceed the note's face value of $800,000.
**Instructions:**
(a) **Discount Calculation and Evaluation:**
- Calculate the bank discount in dollars for days 20, 30, and 40.
- Indicate whether the discount amount is too high or appropriate for Richie to discount and still receive $800,000.
- **Day 20:**
- Bank Discount: $ [Enter Amount]
- Evaluation: [Select "Too High" or "Appropriate"]
- **Day 30:**
- Bank Discount: $ [Enter Amount]
- Evaluation: [Select "Too High" or "Appropriate"]
- **Day 40:**
- Bank Discount: $ [Enter Amount]
- Evaluation: [Select "Too High" or "Appropriate"]
(b) **Challenge Task:**
- Calculate the precise day for the note discount to meet Richie's financial goal.
- **Exact Day Required:**
- Day: [Enter the exact day number]
Use these calculations and decisions to guide Richie in making a financially sound decision regarding the promissory note discount.
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