Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 75

Find the maturity date and the proceeds for the following. Round to the nearest cent. (See Examples.)
Finding Discount and Proceeds
Jim Peterson signs a simple discount note with a face or maturity value of $35,000 so that he can purchase a truck with plow for his snow removal business. The banker discounts the 10-month note at 9%. Find the amount of the discount and the proceeds.
SOLUTION
Peterson does not receive $35,000 from the bank-that is the amount he must repay when the loan matures. Use M = $35,000, D = 9%, and
in the formula B = MDT to find the discount, which is the interest that must be paid at maturity.

The discount of $2625 is the interest charge on the loan. The proceeds that Peterson actually receives when making the loan is found using P = M ? B.

Peterson signs the discount note with a face value of $35,000, but receives $32,375. Ten months later he must pay $35,000 to the bank. The difference is interest.
Finding the Proceeds
To finance a new electronic sign to put in front of a retail store, Mustang Auto signs a 6-month, simple discount note with a face value of $4500. Find the proceeds if the discount rate is 10.5%.
SOLUTION
The bank discount ( B ) is not known, but we do know that B = MDT. Therefore, we can substitute MDT in place of B.

Mustang Auto receives $4263.75 but must pay back $4500 in 6 months.