After being held for 40 days, a 120-day 12% interest bearing note receivable was discounted at a bank at 15%. What is the formula for the proceeds received from the bank? a. Maturity value less the discount at 12%b. Maturity value less the discount at 15%c. Face value less the discount at 12%d. Face value less the discount at 15%

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Business

Stephen Vance

19 April, 08:55

After being held for 40 days, a 120-day 12% interest bearing note receivable was discounted at a bank at 15%. What is the formula for the proceeds received from the bank? a. Maturity value less the discount at 12%b. Maturity value less the discount at 15%c. Face value less the discount at 12%d. Face value less the discount at 15%

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Answers (1)

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Dennis Love · Answer 1

B) Maturity value less the discount at 15%

Explanation:

The money received after discounting the note will equal the maturity value, which includes the face value plus 12% interest receivable on the 120th date, minus the bank's fee, maturity amount x discount rate for 80 days.

For example, if the face value was $100, the maturity value = $100 + ($100 x 12% / 3) = $104. The bank's fee will = $104 x 15% x 80/360 = $3.47

So the net proceeds = $104 - $3.47 = $100.53