Question

2. Lori Koetters was looking at different simple discount notes available to her. She found a note that would cost her $125 in interest at 8% for 90 days. What was the face value?

Answer 1

Answer:

$6336.81

Explanation:

Given:

• Expected cost of the simple discount note = $125

,

• Rate, r = 8%

,

• Time = 90 days = 90/365 year

We want to find the face value (or principal).

Using the simple interest formula:

$\text{ Simple Interest}=\frac{Principal\times Rate\times Time}{100}$

Substitute the given values:

$125=\frac{P\times8\times\frac{90}{365}}{100}$

Then solve for the value of P:

$\begin{gathered} 125=\frac{P\times8\times\frac{90}{365}}{100} \\ \text{Cross multiply} \\ 125\times100=P\times8\times\frac{90}{365} \\ Divide\text{ both sides by }8\times\frac{90}{365} \\ P=\frac{125\times100}{8\times\frac{90}{365}} \\ P=\ 6336.81 \end{gathered}$

The face value of the note is $6336.81.