Ask a question

How much would your friend receive from the sale of the promissory note?

You borrow $5,000 at a simple 15% interest rate from your friend for 18 months in order to purchase new furniture and sign on a promissory note on your borrowing. 5 months later, your friend sells the promissory note to a bank that charges a 20% discount rate (Bank discount).

1 Answer by Expert Tutors

Tutors, sign in to answer this question.
Michael K. | I can help you pass the class, take the test, or get into the college.I can help you pass the class, take the ...
4.8 4.8 (113 lesson ratings) (113)
I'll give it a shot.
Simple interest implies that at the end of paying off the loan in 18 months, I'll have paid back $5000*115%, which is $5750. 
If I am making monthly payments over the course of the loan, in 5 months, I'll have paid back $5750/18= $319.444...*5=$1597.222... 
I plan to pay the rest, $5750-$1597.222=$4152.777... to the bank. 
After taking 20%, they pay my friend 80% of that, so she gets $4152.777...*80%=$3322.222...
How's that?