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23 August, 17:34

Ray Furniture wants to buy a dining room set for $7,000 with a 20% trade discount. Ray needs the cash to pay the bill and is considering discounting a 90-day note dated May 12, with a maturity value of $6,500 at Hunt Bank at a discount rate of 13% on June 5. The bank discount if Ray discounts the note is:

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  1. 23 August, 17:59
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    The bank will discount 56.33 dollars

    The note; after discounts, will be sufficient to purchase the dinning room set.

    Explanation:

    We are at June 5th

    from May 12th this will be: 24 days

    principal x discount rate x time = discount

    6,500 x - 0.13 x 24/360 = 56.33

    nominal - discount = present value

    6,500 - 56.33 = 6,443.67‬

    Now we compare the price of the dinning room set with the net value of the note:

    price of the dinning room

    7,000 less 20% trade in = 7,000 - 1,400 = 5,600

    6,443.67 > 5,600
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