Question

Calculate Bank Discount (Interest), Proceeds, and Effective Rate1. face value =$12,000, Rate=7%Term 180 Days2. Face value =6,000Rate 4%Term 90 Days

Answer 1

INFORMATION:

We have the following three situations:

1. face value =$12,000,

Rate=7%

Term 180 Days

2. Face value =6,000

Rate 4%

Term 90 Days

3. Face value=4,000

Rate=9%

Term 1 Year

And we must calculate Bank Discount (Interest), Proceeds, and Effective Rate

STEP BY STEP EXPLANATION:

1. Bank Discount:

To calculate it, we must use the following formula

`\begin{gathered} Bank\text{ }discount=face\text{ }value* rate* time \\ Bank\text{ }discount=12000*0.07*(180)/(360) \\ Bank\text{ }discount=\text{ \$}420 \end{gathered}`

Proceeds:

To calculate it, we must use the following formula

`\begin{gathered} Proceeds=face\text{ }value-bank\text{ }discount \\ Proceeds=12000-420 \\ Proceeds=\text{ \$}11580 \end{gathered}`

Effective Rate:

To calculate it, we must use the following formula

`\begin{gathered} Effective\text{ }rate=(interest)/(proceeds* time) \\ Effective\text{ }rate=(420)/(11580*(180)/(360)) \\ Effective\text{ }rate=0.0725 \end{gathered}`

2. Bank Discount:

Using the same formula from the last exercise

`\begin{gathered} Bank\text{ }discount=6000*0.04*(90)/(360) \\ Bank\text{ }discount=\text{ \$}60 \end{gathered}`

Proceeds:

Using the same formula from the last exercise

`\begin{gathered} Proceeds=6000-60 \\ Proceeds=\text{ \$}5940 \end{gathered}`

Effective Rate:

Using the same formula from the last exercise

`\begin{gathered} Effective\text{ }rate=(60)/(5940*(90)/(360)) \\ Effective\text{ }rate=0.0404 \end{gathered}`

ANSWER:

1.

Bank discount = $420

Proceeds = $11580

Effective Rate = 0.0725

2.

Bank discount = $60

Proceeds = $5940

Effective Rate = 0.0404