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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

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.

Face Discount Term Bank Effective
Value Rate (%) (days) Discount Proceeds Rate (%)
15. $57,500 12 3 4 230 _____________ _______________ __________

To determine

To calculate: The amount of bank discount, proceeds value and effective rate of interest where face value is $57,500, discount rate is 1234%, time period is 230 days.

Explanation

Given Information:

Face value is $57,500, discount rate is 1234%, time period is 230 days.

Formula used:

The formula to calculate the time for ordinary interest is,

Time=Number of days of a loan360

The formula to compute the amount of bank discount is,

Bank Discount=Face value×Discount Rate×Time

The formula to calculate amount of proceeds is,

Proceeds=Face valueDiscount

The formula to calculate effective rate of interest is,

Effective interest rate=InterestPurchase Price×Time

Calculation:

Consider that face value of loan is $57,500, discount rate is 1234% and time period is 230 days.

Compute the discount amount,

Simplify the discount rate as,

1234%=514%=12.75%=12.75100=0.1275

Evaluate the time as,

Time=Number of days of a loan360=230360

Substitute $57,500 for face value, 0.1275 for discount rate and 230360 for time in the formula

Bank Discount=Face value×Discount Rate×Time” as,

Bank Discount=Face value×Discount Rate×Time=57,500×0

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