On January 8, Lowrence Co. issued a $60,000, 120-day discounted note to Raines Bank. The discount rate is 8%. Assuming a 360-day year, what is the amount of proceeds received?

a. $58,400

b. $55,200

c. $60,000

d. $61,600

On January 8, Lowrence Co. issued a $60,000, 120-day discounted note to Raines Bank. The discount rate is 8%. Assuming a 360-day year, what is the amount of proceeds received?

$55,200

Explanation:

the proceeds received is $55,200 at a discount of 8% of the money issued ($60,000)

a. $58,400

Explanation:

A discounted note, will make the person receive a lesser amount than the amount due at maturity. This way the person who grants the note is receiving interest for borrowing.

Calculations

principal x discount rate x time = discount

Where rate and time should be expressed in the same metric IE if the rate is annual express time in portion of years if it is monthly, in months.

60,000 x 0.08 x 120/360 = 1,600

Now, we subtract this amount form the nominal:

nominal - discount = net

60,000 - 1,600 = 58,400