Answer:
A. $39,600
B. $38,412
Explanation:
In this question, we are required to answer two questions about the proceeds of a note issued at a particular amount with a particular face value. We proceed as follows!
A. Here, we are asked to calculate the the proceeds of the note assuming that the note carries an interest rate of 9%.
This is straightforward,
The proceeds of the note assuming the note carries an interest rate of 9% = Face Value at which the note is issued.
This has a value of $39,600
b. Here, we are asked to calculate the proceeds of the note assuming a discounted rate of 9%
mathematically, proceeds of the note at 9% rate knowing it is a 120-day note is $39,600 - ($39,600 * 9% * 120/360) = $39,600 - $1,188 = $38,412
Answer:
a) 1,584 interest revenue
b) 1,121.36 interest revenue
Explanation:
The procees stands for the interest revenue generate during the life of the financial asset:
principal x rate x time = interest
when rate and time express in the same metric thus, as the rate is annual we express the days as portion of a 360 day:
39,600 x 0.12 x 120/360 = 1,584
When the note is discounted we have to solve for the PV which is given to the borrower
The difference will be the interest accrued for the note:
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity $39,600.00
time 0.33 (120/360)
rate 0.09000
[tex]\frac{39600}{(1 + 0.09)^{0.333333333333333} } = PV[/tex]
PV 38,478.6376
39,600 - 38,478.64 = 1,121.36
