Question

In: Accounting

Paul and sandy Modi signed a $7,690 note at citizens bank. Citizens charges a 6.4% discount...

Paul and sandy Modi signed a $7,690 note at citizens bank. Citizens charges a 6.4% discount rate. Assume the loan is for 320 days.


a. find the proceeds. (use 360 days a year. round your intermediate calculations and final answer to the nearest cent.)


b. find the effective rate changed by the bank. (use 360 days a year. Do NOT round intermediate calculations. Round your answer to the nearest tenth percent.)

Solutions

Expert Solution

Answer:
Proceeds
                =   Face value/ Market Value of note (-) Discount
                =    $ 7,690 (-) ( $ 7,690 x 6.4% x 320/360)
                =     $ 7,690 (-) $ 437.48
                =      $ 7,252.52
Proceeds   =      $ 7,252.52
Total interest   = $ 7,690 x 6.4% x 320/360 = $ 437.48
Effective rate of interest
                 = Total interest / Proceeds   x 360/320
                 =   $ 437.48 / $ 7,252.52 x 360/320
                 = 6.79%
Effective rate of interest    = 6.79%

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