Question

Tom wanted to compare what proceeds he would receive with a simple interest note versus a simple discount note. Both had the same terms: $18,235 at 10% for 2 years. Use ordinary interest as needed.

a. Calculate the simple interest note proceeds.
b. Calculate the simple discount note proceeds.

Answer 1

a) Simple interest note proceeds are equal to the face value: $18,235.

b) Simple discount note proceeds are the face value less the inerest due,
.. $18,235(1 -0.10*2) = $14,588.