Question

Calculate Bank Discount (Interest), Proceeds, and Effective RateFace Value= $12,000Rate= 7%Term= 180 daysBank Discount (Interest)=Proceeds=Effective Rate=

Answer 1

- The formulas needed to solve the question are:

`\begin{gathered} \text{ Let discount be D} \\ \text{ Let proceeds be P} \\ \text{ Let effective rate be E} \\ \text{ Let M be face value} \\ r\text{ be the rate} \\ t\text{ be the time in years} \\ \\ D=M* r* t \\ \\ P=M-D \\ \\ E=(D)/(P)*100\% \end{gathered}`

- Thus, we can solve the questions as follows:

Question 1:

`\begin{gathered} Bank\text{ }Discount(D): \\ D=Mrt \\ D=12000*(7)/(100)*(180)/(360)\text{ \lparen360 days corresponds to 1 commercial year\rparen} \\ \\ D=\$420 \end{gathered}`

Question 2:

`\begin{gathered} Proceeds(P): \\ P=M-D \\ P=12000-420 \\ P=\$11,580 \end{gathered}`

Question 3:

`\begin{gathered} E=(D)/(P)*100\% \\ \\ E=(420)/(11,580)*100\% \\ \\ E=3.62694...\approx3.627 \end{gathered}`