Business Math: present value of $12K note at 14% interest

[Nanniep21]

The maturity value is $12000 on a 14% simple interest note due on September 15th. What is the note's present value when it was made on June 15th?

Please help me with the steps to solve this problem.

 

[stapel]

The maturity value is $12000 on a 14% simple interest note due on September 15th. What is the note's present value when it was made on June 15th?

What formula(s) have they given you? How far have you gotten in applying them? Where are you stuck?

Please be complete. Thank you!

Eliz.

 

[Denis]

The maturity value is $12000 on a 14% simple interest note due on September 15th.

Hint: interest for 1 day = 12000 * (.14 / 365)

 

[tkhunny]

The maturity value is $12000 on a 14% simple interest note due on September 15th.

Hint: interest for 1 day = 12000 * (.14 / 365)

Canadian Math again? It is not perfectly clear to me what "Maturity" value means in this case.

I was thinking this. $12,000 = P + I = P + PRT = P(1 + RT) = P(1 + 0.14*(92/365)) ==> P = $11,590.98

One of us is reading it backwards. Shall we take a vote? Of course, if the student could provide a clear definition of the intent of the problem, that would clear it up.

 

[Denis]

Yikes; 12000 is future, not present: whassamattame?

Well, depending on meaning of simple interest (is it 14% cpd annually?):
12000 / 1.14^(92/365) = 11610.16 :?: :?: :?:

But I'd bet on your 11590.98 :idea:

 

[tkhunny]

Agreed.

Note to student: It is a VERY COMMON error to ASSUME one knows what is going on in an interest rate problem. Without a VERY CLEAR definition, it is very difficult to arrive at a unique answer. It is quite possible that you discussed specifics in your class. The problem statement you provided simply does not contain sufficient detail for a substantive argument in any direction. It is just this confusion that make many, many financial service company's customers very unhappy. Truthfully, I gave up on one customer, many years ago. I told him to go down to any large department store and buy a calculator with an exponent button. Surely it would be less than $10. When he had that in his hand, he could call me back. He wasn't getting it. I think he didn't call me back.