Question

Compute bank discount using (A) ordinary interest, (B) proceeds, and (C) effective interest rate to nearest hundredth. Do not round denominator in your calculation Face Value $12,000 Discount Rate 13% Time in Days 120

Answer 1

To compute the bank discount, you can use ordinary interest, proceeds, or effective interest rate. The calculations are as follows: (A) ordinary interest is $534.80, (B) proceeds is $11,465.20, and (C) effective interest rate is 4.46%.

Step-by-step explanation:

To compute the bank discount, we can use different approaches:

(A) To calculate using ordinary interest, we can multiply the face value by the discount rate and by time in years. In this case, the ordinary interest is $12,000 * 0.13 * (120/365) = $534.80.

(B) To calculate using proceeds, we can subtract the ordinary interest from the face value. In this case, the proceeds would be $12,000 - $534.80 = $11,465.20.

(C) To calculate using effective interest rate, we can divide the ordinary interest by the face value and multiply by 100. In this case, the effective interest rate is $534.80 / $12,000 * 100 = 4.46%.

Answer 2

To calculate the bank discount, you can use three methods: ordinary interest, proceeds, and effective interest rate. Using the given values, the bank discount is $520 using ordinary interest, $520 using proceeds, and $507.79 using the effective interest rate.

Step-by-step explanation:

To calculate the bank discount, we can use three different methods: ordinary interest, proceeds, and effective interest rate.

A) To calculate the bank discount using ordinary interest, we can use the formula: Bank Discount = Face Value * Discount Rate * Time in Days / 360

For this example, the calculation would be: Bank Discount = $12,000 * 13% * 120 / 360 = $520

B) To calculate the bank discount using proceeds, we can use the formula: Bank Discount = Face Value - Proceeds

For this example, we need to calculate the proceeds first. Proceeds = Face Value - Bank Discount = $12,000 - $520 = $11,480

Then, Bank Discount = $12,000 - $11,480 = $520

C) To calculate the bank discount using the effective interest rate, we can use the formula: Bank Discount = Face Value * (1 - (1 + Effective Interest Rate * Time in Days / 360)^(-1))

Using the given values, the calculation would be: Bank Discount = $12,000 * (1 - (1 + 13% * 120 / 360)^(-1)) = $507.79 (rounded to the nearest hundredth).