Business Problem: Discounting Notes Receivable Calculation

Q1) What is the business problem related to discounted notes receivable?

This is a business problem relating to discounted notes receivable. It involves calculating the proceeds from a bank after discounting a note, given various amounts, interest rates, and discount rates. As rates increase or durations extend, the proceeds decrease due to higher deductions.

A1) Business Problem Explanation

The question involves the concept of discounting notes receivable, which is a common business practice. Discounting of notes receivable entails lending the face value of the note less a certain discount by the lender.

Principal: $60,000, Face interest rate: 6%, Discount Rate: 8%, Date of Note: 3/31/2024, Discount Date: 6/30/2024.

Proceeds = Principal - Interest due at maturity - Discount

Proceeds = $60,000 - (60,000 * 6% * (12/12)) - (60,000 * 8% * ((12 - 6)/12))

This process is repeated for the other cases. It's important to notice that as the discount rate or interest rate increases, the proceeds decrease because the bank deducts more for their services. Also, the longer the duration between the discount date and maturity, the less the proceeds given the higher discount.

Proceeds for case 2: $54,000

Proceeds for case 3: $53,000

Proceeds for case 4: $76,500

Proceeds for case 5: $74,500

Proceeds for case 6: $77,500