Steadman's Computer endorses a customer's note dated June 17 to the bank on August The interest rate on the note is 10%,and the bank discount rate is 12%.The note matures on September 6.The discount period is:
A)21 days.
B)60 days.
C)81 days.
D)0 days.

Question

Quizplus · Accepted Answer

To calculate the discount period, we need to calculate the number of days between the date the bank received the note (August) and the maturity date (September 6).
Number of days between August and September 6 = 20 days

Since the bank discount rate is 12% and the interest rate on the note is 10%, the bank will deduct an amount equal to 12% of the face value of the note for a period of 20 days to calculate the money it will lend to the customer.

Using the bank discount formula:
Discount = Face Value x Discount Rate x Time
where Time = Discount Period / 360 (assuming a 360-day year)

Solving for Discount Period:
Discount / (Face Value x Discount Rate) = Time
20 = Discount / (Face Value x 12%)
Discount = Face Value x 12% x 20
Discount = Face Value x 0.24

Now we know that the bank will deduct an amount equal to 0.24 times the face value of the note. To calculate the discount period, we need to find out how many days of interest this represents at the interest rate of 10%.

Using the simple interest formula:
Interest = Principal x Rate x Time

Solving for Time:
Discount = Interest
Face Value x 0.24 = Face Value x 10% x Time
Time = Discount Period / 360 (assuming a 360-day year)
Time = 0.24 / 0.1 x 360
Time = 21.6

Rounding down to the nearest whole number, the discount period is 21 days. Therefore, the answer is A) 21 days.

Steadman's Computer Endorses a Customer's Note Dated June 17 to the Bank