Mr. Alonzo borrowed money from a bank. he receives from the bank P2,450.00 and promised to pay P2,700.00 at the end of 9 months. Determine the corresponding discount rate or often referred to as the “banker’s discount”.
Question
Mr. Alonzo borrowed money from a bank. he receives from the bank P2,450.00 and promised to pay P2,700.00 at the end of 9 months. Determine the corresponding discount rate or often referred to as the “banker’s discount”.
Solution
To determine the corresponding discount rate or "banker's discount," we can use the formula:
Discount = Principal - Amount
In this case, the principal is P2,450.00 and the amount to be paid at the end of 9 months is P2,700.00.
Discount = P2,450.00 - P2,700.00
Discount = -P250.00
Since the discount is negative, we need to find the absolute value of the discount:
|Discount| = |-P250.00|
|Discount| = P250.00
Now, we can calculate the discount rate using the formula:
Discount Rate = (Discount / Principal) * (360 / Time)
Where Time is the time period in days.
In this case, the time period is 9 months, which is equivalent to 9 * 30 = 270 days.
Discount Rate = (P250.00 / P2,450.00) * (360 / 270)
Discount Rate = 0.102 * 1.333
Discount Rate = 0.136
Therefore, the corresponding discount rate or "banker's discount" is 0.136 or 13.6%.
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