On January 13, 2014 a retailer buys goods worth $2,000. If he pays cash, he will get a 4% cash discount. To take advantage of this he signs a promissory interest-bearing note with March 15, 2014 as the due date and with interest at 11% per annum at a bank that discounts notes at a 10% simple interest rate. What should be the face value of this note to give the retailer (as the proceeds) the exact amount needed to pay cash for the goods? How much the retailer saves and what is the bank profit?
On January 13, 2014 a retailer buys goods worth $2,000. If he pays cash, he will get a 4% cash discount. To take advantage of this he signs a promissory interest-bearing note with March 15, 2014 as the due date and with interest at 11% per annum at a bank that discounts notes at a 10% simple interest rate. What should be the face value of this note to give the retailer (as the proceeds) the exact amount needed to pay cash for the goods? How much the retailer saves and what is the bank profit?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 13, 2014 a retailer buys goods worth $2,000. If he pays cash, he will get a 4% cash discount. To take advantage of this he signs a promissory interest-bearing note with March 15, 2014 as the due date and with interest at 11% per annum at a bank that discounts notes at a 10% simple interest rate. What should be the face value of this note to give the retailer (as the proceeds) the exact amount needed to pay cash for the goods? How much the retailer saves and what is the bank profit?
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