Israel signed a simple discount promissory note for $15,000. The discount rate is 7.5%, and the term of the note is 120 days. What are Israel’s proceeds on the loan?
To determine Israel's proceeds on the loan, we need to calculate the amount of money they will receive after deducting the discount.
The formula to calculate the proceeds on a discount promissory note is:
Proceeds = Principal - Discount
The Principal is the original amount of the note, and the Discount is the reduction in the amount due to the discount rate.
First, we need to calculate the discount amount:
Discount = Principal * Discount Rate * Time
Here, the Principal is $15,000, the Discount Rate is 7.5% (or 0.075 in decimal form), and the Time is 120 days (or 120/360 because the discount rate is usually based on a 360-day year).
Discount = $15,000 * 0.075 * (120/360) = $375
Now, we can calculate the Proceeds using the formula:
Proceeds = Principal - Discount
Proceeds = $15,000 - $375 = $14,625
Therefore, Israel's proceeds on the loan amount to $14,625.
To determine Israel's proceeds on the loan, we need to calculate the discount amount and subtract it from the face value of the promissory note.
The discount amount can be calculated using the formula:
Discount = Face Value * Discount Rate * Time
Where:
Face Value = $15,000
Discount Rate = 7.5% (or 0.075 as a decimal)
Time = 120 days
Let's plug in the given values:
Discount = $15,000 * 0.075 * 120/360 (we divide by 360 since discount calculations usually assume a 360-day year in finance)
Simplifying the equation:
Discount = $15,000 * 0.025
Discount = $375
Therefore, Israel's discount on the loan is $375.
To calculate Israel's proceeds on the loan, we subtract the discount amount from the face value of the promissory note:
Proceeds = Face Value - Discount
Proceeds = $15,000 - $375
Proceeds = $14,625
Hence, Israel's proceeds on the loan will be $14,625.