Jack Steele needs $14,500 to computerize his inventory.
Find the face value of a simple discount note that will provide the $14,500 in proceeds if he plans to repay the note in 150 days and the bank charges an 11% discount rate.
Round to the nearest cent.
Given: Proceeds = $14,500 discount rate = 11% term = 150 days
Simple discount note: Discount = Maturity Value * discount rate * term
Proceeds from simple discount note: proceeds = Maturity Value - discount
We will have to work back:
Discount = Maturity Value * 0.11 * 150/360 Discount = Maturity Value * 0.045833
Discount is 0.045833 of the Maturity Value. The proceeds is net of the Discount so we simple deduct 0.045833 from 1 to get the portion of the proceeds as compared to the Maturity Value.
