Mobilee Oil Company accepted a $10,000, 120-day note dated March 3 at 8½% to settle a past-due account receivable. Mobilee Oil discounted the note to raise cash on May 10, at a discounted rate of 9%. What proceeds did Mobilee Oil receive? Use ordinary interest.

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Business

Selina Williams

23 August, 11:14

Mobilee Oil Company accepted a $10,000, 120-day note dated March 3 at 8½% to settle a past-due account receivable. Mobilee Oil discounted the note to raise cash on May 10, at a discounted rate of 9%. What proceeds did Mobilee Oil receive? Use ordinary interest.

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Zachary Hebert · Answer 1

The proceeds that Mobilee Oil Company receives is $10,149.65

Explanation:

Value upon maturity=principal amount+interest of 120 days

Value upon maturity=$10,000 + (120/360*8.5%*$10000)

Value upon maturity=$10,000+$283.33

Value upon maturity=$10,283.33

the value is receivable in 120 days time

On May 1st, the note has earned 68 days interest (29 days in March, 30 days in April plus 9 days in May)

Hence the interest days lost is 52days (120-68)

Discounted amount = $10,283.33 - (52/360*9%*$10,283.33)

=$10,283.33-$133.68

=$10,149.65