Thrifty Home Loan Corp. uses the discount method of calculating finance charges.
ID: 2777624 • Letter: T
Question
Thrifty Home Loan Corp. uses the discount method of calculating finance charges. For the two loans below, calculate the discount amount that Thrifty is charging and the proceeds that go to the borrower. Then calculate the actual interest rate which is based on proceeds rather than the face value. Use a 360-day year and compute actual rates to the nearest 1/100 of a percent. Round amounts to the nearest cent.
Moneywise Loans and Credit Corp. makes many consumer loans by discounting the face value of the loan. The borrower gets the proceeds. For the two loans below, determine the amount of the discount, the proceeds, and the actual interest rate which is based on the proceeds rather than the face value. Use a 365-day year and compute actual rates to the nearest 1/100 of a percent. Round amounts to the nearest cent.
Wei Fang Food Importers often tries to take advantage of cash discounts, even if it must borrow the money for a few days in order to pay the invoice in time. Compute the savings on Wei Fang's purchases and terms from two different suppliers. Use a 365-day year. Assume that the number of interest days is the time between the due date and the last date to take advantage of the cash discount. Round your answers to two decimal places, if necessary.
Face Value Discount Rate Time Discount Amount Proceeds Actual Interest Rate a. $5,000 9% 135 days $________ $________ ______ % b. $3,480 8% 270 days $________ $________ ______%Explanation / Answer
a)FV=5000 Discount rate(R)=9% time(T) = 135 days and 1 year= 360 days
Discount amount(DA)= FV*R*T
=5000*(9/100)*(135/360)=$168.75
Proceeds= FV-DA
=5000-168.75=$4831.25
Actual Interest rate(AI)=I/(P*T)
=168.75/(4831.25*135/360)=9.314%
b)FV=3480 Discount rate(R)=8% time(T) = 270 days and 1 year= 360 days
Discount amount(DA)= FV*R*T
=3480*(8/100)*(270/360)=$208.80
Proceeds= FV-DA
=3480-208.8=$3271.2
Actual Interest rate(AI)=I/(P*T)
=208.8/(3271.2*270/360)=8.51%
a)FV=14800 Discount rate(R)=6.9% time(T) = 92 days and 1 year= 365 days
Discount amount(DA)= FV*R*T
=14800*(6.9/100)*(92/365)=$257.4
Proceeds= FV-DA
=14800-257.4=$14542.6
Actual Interest rate(AI)=I/(P*T)
=257.4/(14542.6*92/365)=7.02%
b)FV=10000 Discount rate(R)=10.3% time(T) = 180days and 1 year= 365 days
Discount amount(DA)= FV*R*T
=10000*(10.3/100)*(180/365)=$507.95
Proceeds= FV-DA
=10000-507.95=$9492.05
Actual Interest rate(AI)=I/(P*T)
=507.95/(9492.05*180/365)=10.85%
Data Insufficient for 3rd part of the question to answer as there is no information given regarding the invoice date to calculate
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