In: Accounting
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% |