   Chapter 10, Problem 22AT ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Using ordinary interest (360 days), calculate the bank discount, proceeds, and effective rate for the following simple discount notes. Round effective rate to the nearest hundredth of a percent. 22. $22,500 10 1 2 60 To determine To calculate: The amount of bank discount, proceeds value and effective rate of discount where face value is$22,500, the ordinary discount rate is 1012%, the time period is 60 days.

Explanation

Given Information:

Face value is $22,500, the discount rate is 1012%, the time period is 60 days. Formula used: The formula to compute the amount of bank discount is, Bank Discount=Face value×Discount Rate×Time The formula to calculate the amount of proceeds is, Proceeds=Face valueDiscount The formula to calculate the effective rate of discount is, Effective interest rate=InterestPurchase Price×Time Calculation: Consider that the face value of the loan is$22,500, the discount rate is 1012% and the time period is 60 days.

Simplify the discount rate as

1012%=212%=10.5%=10.5100=0.105

Evaluate the time as

Time=Number of days of a loan360=60360

Substitute $22,500 for face value, 0.105 for the discount rate and 60360 for time in the formula Bank Discount=Face value×Discount Rate×Time as, Bank Discount=Face value×Discount Rate×Time=22,500×0.105×60360=$393.75

Hence, the amount of discount is \$393

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