2.)Brittany bought a discount bond issued by the State of California with a matu

Question

                    2.)Brittany bought a discount bond issued by the State of California with a maturity value of $20,000. The discount rate was 3.19% and the term was 175 days.                    How much did Brittany pay for the bond?                 

                    3.) Halls Homestyle Horseradish Farms signed a $25,000 discount note with a term of 90 days. The company received proceeds of $24,325. Find the simple                    discount rate for this note.                 

                    4.)On June 28, 2009, I decided to invest some money by buying a $1,000 face value discount note, with a maturity date of December 31, 2009 and a simple                    discount rate of 5.89%. How much of a discount will I get off the notes face value?

Explanation / Answer

1) Proceeds is theamount received by the seller after all costs have been deducted.

So, for the first problem, we have proceeds = Selling (Maturity Price) - Buying Price = 20000 - 19000 = 1000 $ is the proceeds.

2) We have:

Maturity Value = 20,000 $

Maturity Value = Proceeds + Discount

Discount = 20000 * 0.0319 * 175/360 = 310.14 $

Thus, Britanny paid 20000 - 310.14 = 19689.86 $

3) Discount = 25000 - 24325 = 675

675 = 25000 * R * (90 / 360)

R = 675 * 4 / 25000 = 0.108 = 10.8% is the discount rate

4) Discount = 1000 * 0.0589 * (187 / 365) [ since the dates are given I assumed 365 days of an year]

Discount = 30.17 $ is the discount that will be got.

Thus, you shall have to pay = 1000 - 30.17 = 969.83 $ as the price.

Hope these help. Please rate it ASAP. Ask if you have any doubts.

Thanks.

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