What interest rate was used to discount 270-day, $750,000 commercial paper when it was issued for $710,000?
A) 7.21%
B) 7.62%
C) 5.33%
D) 6.63%
E) 6.94%

Question

Quizplus · Accepted Answer

To calculate the interest rate, we can use the discount rate formula:

Discount = (Face Value x Interest Rate x Time) / 360

where Discount is the difference between the face value and the amount received, and Time is the number of days.

In this case, we have:

Discount = $750,000 - $710,000 = $40,000
Time = 270 days

Substituting these values and rearranging the formula to solve for the interest rate, we get:

Interest Rate = (Discount x 360) / (Face Value x Time)
Interest Rate = ($40,000 x 360) / ($750,000 x 270) 
Interest Rate = 0.0762 or 7.62%

Therefore, the answer is choice (B).

What Interest Rate Was Used to Discount 270-Day, $750,000 Commercial