Question 1193314: Please help me with the homework.
A promissory note dated 1 April 2021 for 1500, borrowed at a simple discount rate of 16% p.a. due on the 1 October 2021 is sold on the 1 July 2021.
1.1. what is the maturity value of the note?
1.2. what is the present value on the date of sale?
Answer by yurtman(42)   (Show Source):
You can put this solution on YOUR website! **1.1. Calculate Maturity Value**
* **Find the discount period:**
* Maturity Date: October 1, 2021
* Issue Date: April 1, 2021
* Discount Period: 6 months
* **Calculate discount amount:**
* Discount = Principal * Discount Rate * Time
* Discount = 1500 * 0.16 * (6/12)
* Discount = 120
* **Calculate maturity value:**
* Maturity Value = Principal - Discount
* Maturity Value = 1500 - 120
* Maturity Value = 1380
**1.2. Calculate Present Value on the Date of Sale**
* **Find the time remaining to maturity:**
* Maturity Date: October 1, 2021
* Sale Date: July 1, 2021
* Time Remaining: 3 months
* **Calculate the discount from the sale date to maturity:**
* Discount from Sale Date = Maturity Value * Discount Rate * Time
* Discount from Sale Date = 1380 * 0.16 * (3/12)
* Discount from Sale Date = 55.20
* **Calculate present value on the date of sale:**
* Present Value = Maturity Value - Discount from Sale Date
* Present Value = 1380 - 55.20
* Present Value = 1324.80
**Therefore:**
* **1.1. Maturity Value:** 1380
* **1.2. Present Value on the Date of Sale:** 1324.80
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