What is the effective interest rate of a simple discount note for $32,000, at an ordinary bank discount rate of 13%, for 10 days? Assume that there are 360 days in ayear.The effective interest rate is %.(Round to the nearest tenth as needed.)

Answered: What is the effective interest rate of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 17P

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What is the effective interest rate of a simple discount note for $32,000, at an ordinary bank discount rate of 13%, for 10 days? Assume that there are 360 days in a
year.
The effective interest rate is %.
(Round to the nearest tenth as needed.)

Expert Solution

Step 1

$G i v e n :$

$\begin{array}{rcl} Principal amount & = & $ 32000 \\ Discount rate & = & 13 % \\ Time duration & = & 10 days \\ Number of days in a year & = & 360 \end{array}$

$\begin{array}{rcl} Interest & = & Principal \times Rate \times \frac{Time duration}{360} \\ = & $ 32000 \times 13 % \times \frac{10}{360} \\ = & $ 115.55 \end{array}$

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