On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank's discount rate is 8%.

How much cash will Dower receive from the bank on March 31?

Question

Business

Drew Wright

Today, 05:03

On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank's discount rate is 8%.

How much cash will Dower receive from the bank on March 31?

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Answers (1)

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Aubrey Potter · Answer 1

Dower will receive $30,856

Explanation:

on March 31 the bank will discount the future value of the note at 8% discount rate:

principal x (1 + rate x time) = future value of the note

30,000 x (1 + 0.06 x 3/12*) = 30,450

Now, we solve for the discounte value at march 31 using an 8% discount rate:

30,450 x (1 - 0.08 x 2/12) = 30.856

*From Feb 28th to May 31th we have a 3-month period

**we have two month-lapse between maturity and discount date

On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank's discount rate is 8%.How much cash will Dower receive from the bank on March 31?

On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank's discount rate is 8%.

How much cash will Dower receive from the bank on March 31?