Question 1193660: Please with the homework.
A promissory note dated 1 April 2021 for 1500, borrowed at a simple interest 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 it's present value on the date of sale?
Answer by parmen(42)   (Show Source):
You can put this solution on YOUR website! **1.1. Calculate the Maturity Value of the Note**
* **Calculate the discount period (in years):**
* From April 1, 2021, to October 1, 2021, there are 6 months (180 days).
* 180 days / 360 days (assuming a 360-day year) = 0.5 years
* **Calculate the discount amount:**
* Discount Amount = Face Value * Discount Rate * Time
= $1500 * 0.16 * 0.5
= $120
* **Calculate the Maturity Value:**
* Maturity Value = Face Value - Discount Amount
= $1500 - $120
= $1380
**1.2. Calculate the Present Value on the Date of Sale**
* **Calculate the time remaining to maturity:**
* From July 1, 2021, to October 1, 2021, there are 3 months (90 days).
* 90 days / 360 days = 0.25 years
* **Calculate the discount period for the remaining time:**
* Discount Amount (from July 1 to maturity) = Maturity Value * Discount Rate * Time
= $1380 * 0.16 * 0.25
= $55.20
* **Calculate the Present Value on the Date of Sale:**
* Present Value = Maturity Value - Discount Amount (from July 1 to maturity)
= $1380 - $55.20
= $1324.80
**Therefore:**
* **1.1. The maturity value of the note is $1380.**
* **1.2. The present value on the date of sale (July 1, 2021) is $1324.80.**
**Note:**
* This calculation assumes a 360-day year for simplicity.
* In some cases, a 365-day year might be used.
* This calculation does not consider any potential compounding of interest.
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