Respuesta :
Answer:
The proceeds from the simple discount note is $16380 , while that of simple interest is $19500
Explanation:
Simple discount notes could likened to a bank loan where interest on the loan is taken from the borrowed funds before disbursement to the loan's beneficiary,hence proceeds from such notes is face value of the notes less interest taken in advance.
While on the other hand,the proceeds from simple interest note is par or face value.
The discount or interest is =8%*$19500=$1560 for one year,but $3120 for two years($1560*2)
The proceeds on the simple discount note =$19500-$3120
=$16380
The proceeds on the simple interest note is face value of $19500
Carl Sonntag will receive a total of $19,500 from the Simple Interest Note to pay an interest of $3,150 at the end of two years. On the other hand, Carl will receive a total of $16,712 from the Simple Discount Note.
The difference between the simple interest note and the simple discount note is that for the simple interest note, Carl receives the loan amount ($19,500) in full, but Carl will pay interest at the maturity date.
But for the simple discount note, the loan amount is discounted so that the bank charges the interest upfront before giving the loan to Carl.
Data and Calculations:
Simple Interest Simple Discount
Amount involved $19,500 $19,500
Annual interest rate 8% 8%
Maturity period 2 years 2 years
Interest accrued = $3,120 $3,251 ($2,778 x 1.166)
($19,500 x 8% x 2) $2,778 ($19,500 - $16,712)
Discount factor for 2 years at 8% = 0.857
Future value factor for 2 years at 8% = 1.166
Discounted present value of $19,500 = $16,712 ($19,500 x 0.857)
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