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Therefore, Gracie will earn $61600 if she waits until December 21. However, she will earn bank discount $61132.87 on November 12.
A bank discount is interest that the bank deducts beforehand in the basic discount note. The maturity value less the bank discount equals the amount owed. The total of the principle and interest due at the conclusion of the time period is the maturity value.
Date of note = 14th July
Face value = $60000
Length of note = 160 days,
Interest rate = 6%
Calculating the interest and maturity value:
Interest = Principal × interest × time
= 60000 × 0.06 × 160/360
= 1600
So the maturity value MV = Face value + interest
= 60000 + 1600
= 61600
2. Calculating discount period:
Note discounted on 12th November
Time till 12th November = 315 days
Time till 14th July = 194 days
So days before note is discount = 315 - 194= 121 days
Length of note = 160 days,
So the discount period = 160 - 121 = 39 days
3 - Bank discount:
Bank discount = MV × Bank discount rate × number of days bank waits till due date
= 61600 × 0.07 × 39/360
= 467.133
4 - Proceeds from bank: Proceeds = MV - Bank discount
= 61600 - 467.133
= 61132.87
To learn more about bank discount
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