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A 6 month loan has $5,000 in proceeds and a discount rate of 10%. Determine the face value

User Igor Parra
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1 Answer

5 votes

Answer:

the face value of the loan is $5,263.16.

Explanation:

To determine the face value of the loan, we need to use the formula:

Face Value = Proceeds / (1 - Discount Rate * Time)

where "Time" is the time period of the loan in years.

Since the loan is for 6 months, we need to convert this time to years by dividing it by 12. Therefore, "Time" = 6/12 = 0.5 years.

Now, we can substitute the given values into the formula:

Face Value = 5,000 / (1 - 0.1 * 0.5)

Face Value = 5,000 / (1 - 0.05)

Face Value = 5,000 / 0.95

Face Value = $5,263.16 (rounded to the nearest cent)

Therefore, the face value of the loan is $5,263.16.

User Chuong Nguyen
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