Question

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.


$15,196.51

$15,164.58

$15,186.51

$15,155.48

Answer 1

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.

14,500 / (1-0.045833) = 14,500 / 0.95416 = 15,196.61

My figure is nearest to choice A. $15,196.51