BPM Recording Studios holds a 200-day simple interest note from one of the DJs that agreed to pay them to record an album. The 12% simple interest note has a face value of $48,000.

1. First, calculate the maturity value for this note. Round to the nearest penny.

BPM wishes to convert their note to cash, so they sell it to Lakeside Collections on Day 120. Lakeside isnt familiar with electronic music and requires a high discount rate of 12.5% to take over the loan.

1. How much money will Lakeside Collections pay to take over the loan? In other words, what are the proceeds to BPM studios from the sale of the note?

The effective interest rate for a discount note is different than the discount rate. You should get a higher interest rate. Kudos if you can figure out why its higher!

1. What is the effective interest rate of a simple discount note for $8,000 that has an ordinary bank discount rate of 12% for 90 days? Use the steps above and make sure to use the right numbers in your last calculation round your percentage to tenths place.

HOW TO Find the true or effective interest rate of a simple discount note 1. Find the bank discount (interest). I=PRT 2. Find the proceeds. Proceeds=principalbankdiscount 3. Find the effective interest rate. R=PTI using the proceeds as the principal