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

Question

Question

Answer 1

Answer #1

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, i_t = (1 + i)^t - 1

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

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

Answer 2

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