Question

Life.com issued $13 million of commercial paper on April 1 on a nine-month note. Interest was discounted at issuance at a 8% discount rate. Complete the below table to calculate the effective interest rate on the commercial paper. (Do not round intermediate calculation. Enter your answers in whole dollars. Round "Annual Effective Rate" to 1 decimal place. (i.e., 0.123 should be entered as 12.3).)

Life.com issued $13 million of commercial paper on April 1 on a nine-month note. Interest was discounted at issuance at a 8% discount rate. Complete the below table to calculate the effective interest rate on the commercial paper. (Do not round intermediate calculation. Enter your answers in whole dollars. Round "Annual Effective Rate" to 1 decimal place. (i.e., 0.123 should be entered as 12.3).) Principal x X Annual Rate 81% Time 9/12 = = Discount 780,000 Calculation of discount $ 13,000,000 x X $ 9-month rate 0 % Conversion Factor Annual Effective Rate Discount | $ 780,000 = X Proceeds

Answer 1

Solution:

	Principal	*	Annual rate	*	Time	=	Discount
Calculation of discount	13000000	*	8%		9/12	=	780000
			9 month rate	*	Conversion factor	=	Annual Effective Rate
Discount	780000	=	6.38298%	*	12/9	=	8.5%
Proceeds ($13,000,000- $780,000)	12220000