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Q&A: The interest charged by the bank, at the rate of 6%, on a 90-day, discounted note payable for $100,000 is?

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Question by mustang08: The interest charged by the bank, at the rate of 6%, on a 90-day, discounted note payable for 0,000 is?
This is an accounting class and in search of answers from any accounting experts.

Best answer:

Answer by MathMan TG
I am not an accountant, but …
I would figure it this way.

Since 90 days is very close to an approximation of 1/4 year,
and 1/4 of .06 = .015,

(100 – x) * 1.015 = 100.
101.5 – 1.015x = 100
1.5 = 1.015x
1.5/1.015 = x
x = 1.47783

So the discount on 100K would be
1477.83 which would be the interest of 1.5% on 98522.17.

98522.17 x 1.015 = 100000

(If this were a huge amount and every day’s interest mattered, then instead 90/360 x .06 = .015, you might use 90/365 x .06 = .014795 instead.)

Know better? Leave your own answer in the comments!

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