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On March 25, Helen Norton received from a customer a $3,200 promissory note at 12% ordinary...

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Finance

On March 25, Helen Norton received from a customer a $3,200promissory note at 12% ordinary interest for 60 days. On April 14,Helen discounted the note at the Glenside Bank at a discount rateof 15%.

a. What was the maturity date of the note?

b. What was the maturity value of the note?

c. Determine the discount period.

d. What proceeds did Helen receive on April 14?

e. What is the effective interest rate discounted at theGlenside Bank?

Answer & Explanation Solved by verified expert
3.7 Ratings (633 Votes)

a)Maturity date =Issue date +number of days

                          =March 25 + 60 days

                          = 24 may

b)Interest accrued on note =Face value *Rate*n/365

                = 3200 *.12 *60/365

                  = $ 63.12

Maturity value =Face value +interest accrued

                  = 3200+64

                  = 3263.12

c)Discount period = Maturity date -Discount date

                        = 24 May - April 14

                       = 40 days

d)Discount rate per day = 15/365 =.041096%

proceeds received = maturity value /(1+i)^n

                        = 3263.12/(1+.00041096)^40

                         =3263.12/(1.00041096)^40

                         = 3263.12 / 1.0165

                       = 3210.15

e)Effective interest rate =[1+APR/n]^n   -1

                      =[1+ .15/365]^365 -1

                       =[1+.00041096]^365   -1

                       = [1.00041096]^365 - 1

                        = 1.1618 - 1

                       = .1618 or 16.18%
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