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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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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