Ray Furniture wants to buy a dining room set for $7,000 with a 20% trade discount. Ray needs the cash to pay the bill and is considering discounting a 90-day note dated May 12, with a maturity value of $6,500 at Hunt Bank at a discount rate of 13% on June 5. The bank discount if Ray discounts the note is:

The bank will discount 56.33 dollars

The note; after discounts, will be sufficient to purchase the dinning room set.

Explanation:

We are at June 5th

from May 12th this will be: 24 days

principal x discount rate x time = discount

6,500 x - 0.13 x 24/360 = 56.33

nominal - discount = present value

6,500 - 56.33 = 6,443.67‬

Now we compare the price of the dinning room set with the net value of the note:

price of the dinning room

7,000 less 20% trade in = 7,000 - 1,400 = 5,600

6,443.67 > 5,600