Question

Misk, Inc. received from a customer a one year, $750,000 note bearing annual interest of 9%. After holding the note for six months, Misk discounted the note at National Bank at an effective interest rate of 12%. What amount of cash did Mick receive from the bank:__________

a. 719400
b. 768450
c. 700950
d. 780713

Answer 1

B. 768,450

Step-by-step explanation:

Given that

Musk receive 750,000 one year note annual bearing interest rate of 9%

Maturity value of note = Face value + 9% interest rate

= 750,000 + (750,000 × 0.09)

= 750,000 + 67500

= $ 817500

Since the note is discontinued after 6 months, the bank will only receive 817500 for 6 months.

The discount therefore at an effective rate of 12%

= 817500 × 12% × 6/12

= 98100 × 6/12

= $49500

Therefore, Misk will receive

Maturity value of note - discount

= 817500 - 49500

= $768,450