Solve the problem. Round rates to the nearest tenth of a percent, dollar amounts to the nearest cent, and time to the nearest day.
-Leon Harding receives proceeds of $5,095 after signing a 180-day note for $5,400. Find the discount rate.
A)11.6%
B)11.3%
C)11.7%
D)15.3%

Question

Quizplus · Accepted Answer

The formula for finding the discount rate is:

Discount Rate = (Discount / Face Value) × (360 / Days)

where Discount = Face Value - Proceeds, and Days = the term of the note.

Plugging in the given values, we get:

Discount Rate = [(5400 - 5095) / 5400] × (360 / 180)
Discount Rate = (305 / 5400) × 2
Discount Rate = 0.0565 or 5.65%

Rounding this to the nearest tenth of a percent, we get the answer as 5.7%.

The best choice is B, as it is the closest choice to our rounded answer of 5.7%. The other choices are significantly off, with A and C being too high and D being too low.

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