Question

Jack Cobb signed a simple discount note with a face value of $12000 at a discount rate of 14% for 7 months. Find the proceeds of the note and the effective interest rate

Answer 1

Answer:

Proceeds = $11020

Effective interest rate = 15.2%

To find the proceeds of the note, we will subtract the bank discount from the face value

$Discount=12000\times0.14\times\frac{7}{12}=980$$\text{Proceeds}=12000-980=11020$$R=\frac{I}{PT}$$R=\frac{980}{(11020)(\frac{7}{12})}$$R=0.15245=15.2\%$