Bank Discount Questions

John45

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Sep 15, 2010
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I desperately need help, I've been working on these problems non stop for the past few hours and the sad part about this is that I take Calc II but this low level math is giving me issues.


So with that said i'm not sure if its just me or if my prof wording the questions strange, or forgets crucial information. I list the questions below to which I've only answered a few with somewhat certainty.

I really need help badly any answers would be appreciated, if you can show work that would be a life savor. I will continue to update this with my work thus far. Thanks


QUESTIONS
1.) Determine the bank discount and the proceeds if $5,000 is discounted for the time period April 1st 2003 – Nov 30th 2003. The discount rate used by this bank is 12%.
Knowns: d = .12 , n = (7/12) , S = $5000
I' =Sdn = $5000(.12)(7/12) =$350
P' = S - I' = $5000 - $350 = $4650

I' = $350
P' = $4650




2.) If Johnny A. Pleseed is to purchase his dream car he needs to find a way to get $2,500 in cash right now!. Johnny finds a bank that is willing to help him out. If the bank is willing to discount an amount to help Johnny – what is the amount of the loan John must repay to the bank in 6 months? Assume the bank uses a discount rate of 8 ½%.
Knowns: P' = $2,500 , d = .085 , n = (6/12) or (1/2)
P' = S(1 - dn) = $2,500= S
(1 - (.085)(1/2))
S = $2,500 /
(1 - (.085)(1/2)) = $2610.97

Maturity Value = $2610.97 (is that what it asked for?)



3.) In order to earn 14% simple interest on a 90 day short term loan – what discount rate should be charged by a bank?
Knowns: i = .14 , n = (90/360) or (1/4)
d = i / (1+in) d = .14 / (1 + .14(1/4)) ~ .1352657005

d = 14%

4.) A note that is dated January 1st with a face value of $5000 comes due on March 15th with interest at 10%. If the owner of the note sells it on February 15th to a bank, which discounts the note at a discount rate of 12% - how much money does the bank pay on Feb 15th?
S or P = $7,000 I' = Sdn
d = .11 7000 + 42.78 =
$7,042.78
n = (20/360)






5.) A non interest bearing 120 day note with a face value of $7,000 comes due on June 1st. The owner of the note holds it for only 20 days before having it discounted at a bank which discounts at a rate of 11 %. What amount does the owner get from the bank after 20 days?

S or P = $7,000 I'=Sdn = $42.78
d = .11 7000 + 42.78 =
$7,042.78
n = (20/360)



6.) The owner of a new start up software company needs $5,000 to get his business started on May 1st. If this owner arranges a 100 day note with a bank which discounts at a rate of 13%, what is the face (loan) value to be repaid in 100 days?
P’=$,5000 P= S / (1 + in) S = P’ / ( 1 – dn)
d=.13 $5000 / (1 - .13(100/360)) = $5187.32 = S
n=(100/360) i = d / ( 1 - dn) = 14%
P = $5187.32 / ( 1 + .14(100/360)) =
$4993.14




7.) Dale D.B. Inc issued a $1 million piece of commercial paper that was to mature on August 19th. This commercial paper was purchased by an investor on July 4th who discounted at a rate of 10%. Find the purchase price for this investor on July 4th.







8.) The investor in #7 above had a change in circumstances and needed cash on August 1st. As a result, he sold the $1 million piece of commercial paper to another investor at a discount rate of 12% on that date. Calculate the amount of interest that was earned by the investor in question #7 AND the amount he was able to sell it for on August 1st.



9.) On January 10th a bank sold a $100,000 certificate of deposit to mature on March 10th and bear interest at 5%. If the buyer holds this certificate of deposit until its maturity date – how much do they receive on March 10th?
i = .05 S = P( 1 + in)
n = (2/12) or (1/6) S = $100,000(1+.05(1/6)) =
100,833.33
P= $100,000

 
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