Question

Misk, Inc. received from a customer a one year, $750,000 note bearing annual interest of 9%. After holding the note for six months, Misk discounted the note at National Bank at an effective interest rate of 12%. What amount of cash did Mick receive from the bank?\\

Answer 1

Answer:

Amount of cash Mick receive from the bank: $768,450

Explanation:

Given:

• $750,000 note
• interest of 9%
• n = 6 months
• Effective interest rate of 12% = 0.12

At first, we need to find out the maturity value, which is:

= $750,000 + $750,000 × 9%

= $750,000 + $67,500

= $817,500

Hence, amount of cash Mick receive from the bank:

= Maturity amount - Maturity amount × effective interest rate × number of periods in year

= $817,500  -  $817,500 *0.12*$\frac{6}{12}$

= $817,500 - $49,050

= $768,450

Hope it will find you well.