Hello, Here it goes (I don't understand the answer either)

Q: Company A has received a $50,000 note receivable from a customer which will come due in six months, earning 12% annually. After one month, company A needs Cash, so the note is discounted at the local bank at a 10% annual rate. How much money will company A receive from discounting the note?

A: The amount company A will recieve from discounting the note can be dertermined through the following three-step process:

1. Calculate the maturity value of the note:

$50,000 x 12% x 6 months= $3000 interest

$50,000 + 3,000= $53,000 Maturity Value

2. Calculate the bank profit:

$53,000 x 10% x 5/12 months = $2,210

3. Calculate the amount received from the bank:

$53,000 - $2,210 = $50,790

I don't understand the reasoning behind the problem. What does discounting mean? The bank is the factor?

Please help.

It's a very simple concept. You have a note recievable which is going to fetch you 6% (12% annually) after 6 months, so you are going to recieve $ 53000 after 6 months, but apparently you have a cash emergency and you can't wait until the end of 6 months, so you go to the bank and exchange that note with cash immediatly but bank is going to charge you interest for those 5 months at 5% (annually 10%), hence you have to pay the bank  interest of (53000 * 5% * 5/12) for giving you the cash immediatly. so what you get is the difference between what you would have got, had you not discounted the note with the bank and what you paid to the bank for giving you the cash immediatly

I hope that helps you