   Chapter 10.III, Problem 21RE ### 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

# Calculate the interest, purchase price, and effective interest rate of the following Treasury bill (T-bill) purchases. Round effective interest rate to the nearest hundredth of a percent. Face Discount Term Purchase Effective Value Rate (%) (weeks) Interest Price Rate (%) 21. $15.000 5,20 13$195 $14,805 5.27 To determine To calculate: The amount of bank interest, purchase price and effective rate of interest where face value is$15,000, discount rate is 5.20%, time period is 13 weeks.

Explanation

Given Information:

Face value is $15,000, discount rate is 5.20%, time period is 13 weeks. Formula used: The formula to calculate the time is, Time=Number of weeks of a loan52 The formula to compute the amount of bank interest is, Bank interest=Face value×Discount Rate×Time The formula to calculate purchase price is, Purchase Price=Face valueInterest The formula to calculate effective rate of interest is, Effective interest rate=InterestPurchase Price×Time Calculation: Consider that face value of loan is$15,000, discount rate is 5.20% and time period is 13 weeks.

Compute the interest amount,

Simplify the interest rate as,

5.20%=5.20100=0.052

Evaluate the time as,

Time=Number of weeks of a loan52=1352

Substitute $15,000 for face value, 0.052 for discount rate and 1352 for time in the formula Bank interest=Face value×Discount Rate×Time” as, Bank interest=Face value×Discount Rate×Time=15,000×0.052×1352=$195

Hence, amount of interest is \$195

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