Answer to Question #252514 in Financial Math for sharan

Question

A non-interest bearing promissory note has a face value of $950. Find the proceeds of this note if it is discounted 3½ years before its maturity date at 8% compounded quarterly

Answer 1

The formula for calculating the value of the note:

$$P=S(1-\frac{d}{m})^{m\cdot n},$$

where $P$ is the value of the note;

$S$ - face value;

$d$ - interest rate for the settlement period (day, month, year, ...);

$m$ is number of charges per year.

$P=950(1-\frac{0.08}{4})^{4\cdot 3.5}=715.96$ $

Discount of this note $S-P=950-715.96=234.04$ $