CMA Study Group

Short-Term Financing

  • 1.  Short-Term Financing

    Posted 7 days ago
    A firm has been offered a 1-year loan by its commercial bank. The instrument is a discounted note with a stated interest rate of 9%. If the firm needs $300,000 for use in the business, what should the face value of the note be?
    Answer (A) is correct.
    The face amount of a loan with discounted (paid in advance) interest can be calculated as follows:
    Total borrowings =
    Amount needed ÷ (1.0 – stated rate)
     =
    $300,000 ÷ (1.0 – .09)
     =
    $300,000 ÷ .91
     =
    $329,670



    ------------------------------
    Tayba Al-Mehdar
    Analyst
    Khobar
    Saudi Arabia
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  • 2.  RE: Short-Term Financing

    Posted 7 days ago
    Do you need logic behind it?

    Actually the firm needs $300,000 to use that is after paying the interest.

    So as mentioned the interest is 9% and after that 9% paid the remaining amount must be $300,000 to use.

    So the $300,000 must be 91% of the total amount as 9% is the amount of interest to be paid.  (100% - 9% = 91% or 0.91)

    So if the amount $300,000 is 91% of total amount, it means the full amount must be $300,000 / 0.91 or 91%.

    it would give you the amount of $329,670.33.


    If you have any question please ask.

    ------------------------------
    Ashvin Kulkarni
    Accountant
    Pune
    India
    ------------------------------



  • 3.  RE: Short-Term Financing

    Posted 6 days ago
    Yes answer is (A) = 300,000 X 100/91 = 329,670.00

    Thanks and regards.


    Dinesh Kumar.T

    Dubai,

    United Arab Emirates

    Mail to: dineshkumar.t@...

    T +971 4 805 3820

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