Richie Powers is the owner of American Eagle Boats, a manufacturer of custom ple

Question

Richie Powers is the owner of American Eagle Boats, a manufacturer of custom pleasure boats. Because of the economic recession and slow boat sales recently, American Eagle has begun accepting promissory notes from its dealers to help finance large orders. This morning American Eagle accepted a 90-day, 9.5% promissory note for $600,000 from Champion Marine, one of its sales dealers.

You are a manager for Atlantic Bank, and Richie is one of your clients. Atlantic's discount rate is currently 16%. Richie's goal is to discount the note as soon as possible, but not until the proceeds are at least equal to the face value of the note, $600,000.

a. As his banker, Richie has asked you to "run the numbers" at ten-day intervals starting with day 20 and advise him as to when he can discount the note and still receive his $600,000.

Enter "20", "30", "40", "50", or "60" (without the quotes) to indicate your answer.

Day

b. (Challenge) Calculate the exact day the note should be discounted to meet Richie's goal.

Day

Explanation / Answer

Maturity worth of the unique note:

Maturity worth = Principal (1+ Rate*time) = $600,000 (1+0.095*90/360)=$614250

income = middle age value - stock discount. The proceed probable is next to smallest amount $600,000. therefore bank drop should be $14250.

614250*0.16*(90-x)/360 = 14250. Here 90-x be reduction period.

or x = 90-(14250/273)=37.80

Hence the respond is "40".

B. The exact amount of being is 38. At 38th day the proceed will be at most the face charge of $600,000.

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