Question 4 (3 points) Sam owns a bookstore. He bought stationary from SMART Company for a value of $2520 on November 13, 2020 using a financial instrument. After 220 days, Sam paid SMART $2863 cash. Sam bought the stationary using (treasury bills- cheque- interest bearing promissory note - non-interest bearing promissory note) Sam also purchased a bunch of A4 papers packs for $ 320 from SUCCESS Company on account for 175 days. After 83 days, SUCCESS required cash; consequently it sold the outstanding promissory notes. A/an (borrower - investor) bought the treasury bills- cheque- interest bearing promissory note - non-interest bearing promissory note) for $317.21when the money worth was 3.5% p.a.

The instrument used for the transaction between Sam and SMART company is a promise the state amount on a future date and is a promissory note. Since Sam paid $2,863 which is higher than the original amount of $2,520 due, the difference amounts to interest. Hence the instrument used for the transaction between Sam and SMART company is interest bearing promissory note.

Regarding other choices given which are not correct:

Treasury bill is the instrument issued by Government to raise funds.

Cheque is an instrument to transfer money and not a borrowing instrument. Money involved in cheque is constant.

SUCCESS sold the promissory note to another investor before due date at $317.21 ie., an amount lower than its face value of $320. That means the investor is compensated by the difference between the face amount of the promissory note and the price at which he/she buys it. This shows that the promissory note, by its own, does not entitle interest for the holder/investor. Hence the instrument issued by Sam to SUCCESS is non-interest bearing promissory note.

Regarding other choices given which are not correct, explanation given above holds good.