Marvury bank

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%;

(c)    The Marbury Bank rediscounted the note at LaPlata Bank a month later (July 20)

at 11%.

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

(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.