Question

On july 24, sheffield company discounted at sunshine bank a

$7,650 (maturity value) , 131 day note dated April 16th. sunshines
discount rate was 10% what proceeds did sheffield company
receive?

Answer 1

To determine the proceeds Sheffield Company received, the discount on the note was calculated using the maturity value and the bank's discount rate, and then subtracted from the face value of the note. The final proceeds amounted to $7,438.75.

Step-by-step explanation:

The Sheffield Company discounted a note for $7,650 that had a maturity value of 131 days with Sunshine Bank using a discount rate of 10%. To calculate the proceeds received by Sheffield Company, we first need to calculate the discount amount and then subtract it from the note's face value.

Here are the steps to find the proceeds:

Find the number of days until maturity: From April 16 to July 24 is 99 days (since April has 30 days, May has 31 days, June has 30 days, and July has 24 days).

Calculate the discount: Discount = Maturity value × (Discount rate × Time in years), where Time in years is the number of days until maturity divided by 360 (using the Banker's rule). So we have Discount = $7,650 × (0.10 × (99/360)).

Subtract the discount from the maturity value: Proceeds = Maturity value - Discount.

After performing these calculations:

Discount = $7,650 × (0.10 × (99/360)) = $211.25

Proceeds = $7,650 - $211.25 = $7,438.75

Note that interest rates and discount rates influence the bond's market price.