Question

A note with a maturity value of $25,000 is discounted at a rate of 14%. The term is 290 days. Find the loan proceeds. *

Answer 1

The Loan Proceeds is express as :

Proceeds = Maturity Value - Bank Discount

where,

Bank Discount = Maturity Value × Discount Rate × Period of Discount

In the given question we have,

Maturity value = $25,000

Discount Rate = 14%

Period of Discount = 290 days

Substitute the values and find the Bank discount

`\begin{gathered} \text{ Bank Discount = Maturity Value }*\text{ Discount Rate } \\ \text{ Bank Discount = 25000}*0.14 \\ \text{Bank Discount = 350}0 \end{gathered}`

Now substitute the value of Bank Discount in the expression of Proceeds

`\begin{gathered} \text{Proceeds = Maturity value - Bank Discount} \\ \text{Proceds = 25000-3500} \\ \text{Proceds = 21500} \end{gathered}`

Answer : Proceeds = $21500