Question

# The face value of a simple discount note is \$4,000. The bank discount is calculated at...

The face value of a simple discount note is \$4,000. The bank discount is calculated at 12% for 60 days. Use ordinary interest. Calculate: A bank discount B. proceeds C. maturity value D. Effective rate to the nearest hundredth percent

Ordinary Interest = I. = Pr (D/360); I. = 4000 x 60/360 x 12/100; I. = \$80

A, Bank discount = (face value)(discount rate)(time) = (4,000)(0.12)(60/360) = 28800/360 = \$ 80.00

B, Proceeds = face value-bank discount = 4,000-80 = \$ 3,920

C, MV = P * ( 1 + r )n

MV = 4000 * (1+12%)0.164384

MV = 4000 * 1.524454491 = \$ 6097.817964

D, it = (1 + i)t - 1

it = (1 + 0.0722901)5 - 1 = 0.417625 = 41.76%

And we would also get it = ( 1 + ( r / m ) )mt - 1 = 41.76%

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