Picard Orchards requires a $100,000 annual loan in order to pay laborers to tend and harvest its fruit crop.Picard borrows on a discount interest basis at a simple annual rate of 11 percent.If Picard must actually receive $100,000 net proceeds to finance its crop,then what must be the face value of the note?
A) $111,000
B) $100,000
C) $112,360
D) $89,000
E) $108,840

Question

Quizplus · Accepted Answer

The formula for discount interest is Face Value = Net Proceeds / (1 - (Discount Rate x Time)). 
We know Net Proceeds = $100,000 and Discount Rate = 11%. We need to calculate Time. 
Since it is an annual loan, Time = 1. 
Plugging in the values, we get: 
Face Value = $100,000 / (1 - (0.11 x 1)) 
Face Value = $100,000 / 0.89 
Face Value = $112,360 
Therefore, the face value of the note must be $112,360.

Picard Orchards Requires a $100,000 Annual Loan in Order to Pay