Promissory note selling to the bank before due date.

Question

Bob signs a promissory note to repay Linda $\$9000$, with the note due in 11 months from January 14, 2013. The maturity value of the note is $\$9544.55$. Linda sells the note to a bank on April 18, 2013. What price does Linda get for the note if the bank wishes to earn $r = 8\%$?

Right now I thought that t=240/365 (the amount the bank has the note for).

So 9544.55 = x(1+(0.08*(240/365)) x being the amount the bank paid for it.

so x = 9067.57 but that is not right.

Answer 1

You are assuming simple interest. They are probably assuming compound interest. That raises the effective return and reduces the price the bank will pay. If the interest is compounded daily, the value is multiplied by $1+\frac {0.08}{365}$ each day, so the overall value is multiplied by $(1+\frac {0.08}{365})^{240}$ and Alpha gets a value of $9055.51$