Misk, Inc. received from a customer a one year, $750,000 note bearing annual interest of 9%.

After holding the note for six months, Misk discounted the note at National Bank at an effective interest rate of 12%.

What amount of cash did Mick receive from the bank?

a. $780,713

b. $768,450

c. $700,950

d. $719,400

b. $768,450

Explanation:

In order to compute the cash received from the bank first we have to find out the maturity value that is shown below:

= $750,000 + $750,000 * 9%

= $750,000 + $67,500

= $817,500

Now the amount received from the bank is

= Maturity amount - Maturity amount * effective interest rate * given months : total number of months in a year

= $817,500 - $817,500 * 12% * 6 months : 12 months

= $817,500 - $49,050

= $768,450