Promissory Notes

Jerry Baldic is the owner of Pleasure Cruising Vehicles (PCV), a manufacturer

of recreational vehicles (RVs). Sales have been slow lately due to a less than

robust economy. As a result of this, PCV has begun accepting promissory notes

from its dealers to help finance large orders. Today, PCV accepted a 90-day,

7.5% promissory note for $400 000 from Cross Country Touring, one of its

sales dealers, who purchased three 40-foot RVs.

You are the manager of Bank One, and Jerry is one of your clients. Bank One

currently discounts notes at a 12% rate of simple interest. Jerry's goal is to sell

the note to Bank One as soon as possible, but not until the proceeds are at least

equal to the face value of the note, $400 000.

a) Jerry asks you to "do the math" for him, at 10-day intervals starting with

day 20, and advise him as to when he can discount the note and still receive

his $400 000.

b) What is the exact day the note should be discounted?

c) If a different bank offers a rate of 12%, but it is a simple discount rate

instead, what is the exact day the note should be discounted?