The facts of the problem found in order # 31651547 are:
(a) The note had a face value of $10,000;
(b) It was a three-month note dated June 18, with a discount rate of 12%;
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(c) The Marbury Bank rediscounted the note at LaPlata Bank a month later (July 20)
To calculate the amount which the Marbury Bank loaned to the maker of the note, the following steps would have to be taken:
(a) Calculate the discount for one year: 10,000 (12%) = 1,200
(b) Then get the discount for 3 months: 1,200 (3/12) = 300
(c) Deduct the discount for 3 months from the face value of the note: 10,000 – 300 = 9,700
(d) Therefore, Marbury Bank loaned the amount of $ 9,700 to the maker of the note.
When the Marbury Bank rediscounted the note at LaPlata Bank on July 20 at 11%, the note was, in effect, only a 2-month note since one month had already elapsed. To calculate how much Marbury Bank received from LaPlata Bank for the note, the following steps would have to be taken:
(a) Calculate the discount for one year: 10,000 (11%) = 1,100
(b) Then get the discount for two months: 1,100 (2/12) = 183.33
(c) Deduct the discount for two months from the face value: 10,000 – 183.33 = 9,816.67
(d) Therefore, Marbury Bank would receive $ 9,816.67 from LaPlata Bank.
Having loaned the amount of $ 9,700 to the maker of the note and then getting $ 9,816.67 from LaPlata Bank after it rediscounted the note, the Marbury Bank therefore realized a profit of $ 116.67 from the transactions, i.e.: $ 9,816.67 – $ 9,700 = $ 116.67.
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