Carl Sonntag wanted to compare what proceeds he would receiv

Carl Sonntag wanted to compare what proceeds he would receive with a simple interest note versus a simple discount note. Both had the same terms: $20,830 at 10% for 1 years. Use ordinary interest as needed.

a. Calculate the simple interest note proceeds.

Simple interest note proceeds            $

b. Calculate the simple discount note proceeds.

Simple discount note proceeds            $

Solution

Answers

Note amount = $ 20,830
1 year interest at 10% = 20830 x 10% = $ 2,083

Simple Interest Note proceeds = $ 20,830 + $ 2,083 = $ 22,913

Note amount = $ 20,830
Discounted value at 10% for 1 year = $20,830 x [1/1+10%)¹]
= 20830 x (1/1.1)
= 18936.36

Simple Discount Note proceeds = $ 18,936.36