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.
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Ashvin Kulkarni
Accountant
Pune
India
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Original Message:
Sent: 10-13-2020 05:22 AM
From: Tayba Al-Mehdar
Subject: Short-Term Financing
| 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 |
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Tayba Al-Mehdar
Analyst
Khobar
Saudi Arabia
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