With an effective annual interest rate of 10.04%,how much finance can a company raise by drawing a commercial bill with a face value of $100 000,maturing in 180 days?
A)$96 400
B)$95 121
C)$90 580
D)$81 822

Question

Quizplus · Accepted Answer

To calculate the finance that can be raised, we need to first find the discount on the face value of the bill.

Effective annual interest rate = (1 + i/n)^n - 1 
where i = nominal annual interest rate, n = number of compounding periods per year

10.04% = (1 + i/2)^2 - 1 
i = 9.86% 
n = 2 (since the bill matures in 180 days, which is half a year)

Discount = Face value x Nominal annual interest rate x Time period 
= $100,000 x 9.86% x 180/360 
= $4,879

Finance that can be raised = Face value - Discount 
= $100,000 - $4,879 
= $95,121

Therefore, the best choice is B.

With an Effective Annual Interest Rate of 10