Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447



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.


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


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


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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