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Dmitry
21 day ago
11

Innovative Engineering received a promissory note of $15,500 at 11% simple interest for 15 months from one of its customers. Aft

er 3 months, Union Bank discounted the note at a discount rate of 13%. Calculate the proceeds that Innovative Engineering will receive from the discounted note. (Round to the nearest cent)
Business
1 answer:
arsen [3.4K]21 day ago
6 0

Response:

The proceeds from the note will amount to

$ 15,099.56

Clarification:

When calculating the discount for the note, we must apply the Union Bank's discount rate rather than the note's interest rate since they differ. The former is the return on the promissory note if held to its due date, while the latter indicates the rate used by the bank for determining the discount.

To begin, we calculate the maturity amount:

15,000 x (1 + 0.11 x 15/12) = 17,062.5

This total will then be subjected to a 13% discount

\frac{Maturity}{(1 + rate)^{time} } = PV

Maturity $17,062.5000

time 1.00

rate 0.13000

\frac{17062.5}{(1 + 0.13)^{1} } = PV

Present Value 15,099.5575

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