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

Exercise 21

12. Find the maturity value of the following simple interest notes. Each note is then discounted at 12 ,. Find the discount period, the discount, and the proceeds after discounting. (See Examples.)
Finding Proceeds
Jameson Plumbing takes a simple interest, 180-day note from a contractor with a face value of $64,750 and a rate of 10.5%. The company sells the note to a bank 50 days later at a discount rate of 12%. Find the proceeds to the plumbing company.

SOLUTION

So, the following occurs:
1. A contractor signs a 180-day simple interest note with a face value of $64,750 to Jameson Plumbing.
2. After 50 days, Jameson Plumbing sells the note to a bank and receives $65,196.24 in cash.
3. The bank receives $68,149.38 on the maturity date of the loan.
Finding Proceeds
Blues Recording holds a 200-day simple interest note from a rock group that agreed to pay them to record an album and produce 1000 CDs. The 12% simple interest note is dated March 24 and has a face value of $48,000. Blues Recording wishes to convert the note to cash, so they sell it to a bank on August 15. If the bank requires a discount rate of 12.5%, find the proceeds to the recording studio.

Quick TIP
When finding the bank discount, be sure to use the maturity value of the original note.
SOLUTION
Go through the two steps of discounting a note.