ranson Inc. has sold product to the Brandywine Company, a major customer, for $20,000. As a courtesy to Brandywine, Branson has agreed to take a note due in two years for half of the amount due. a. What is the effective price of the transaction to Branson if the interest rate is. (1) 6%, (2) 8%, (3) 10%, or (4) 12%

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topeadeniran2 topeadeniran2 · Answer 1 · 2021-06-06T05:42:53+02:00

Answer: See explanation

Explanation:

The effective price of the transaction to Branson based on the interest rate given will be:

1. PV = FV [PVF6,2] = $10,000(0.89) = $8,900

Therefore, $8,900 + $10,000 = $18,900

Effective Discount will be:

= (20000 - 18900) / 20000 × 100

= 1100/20000 × 100

= 0.055

= 5.5%

2) PV = FV [PVF8,2] = $10,000(0.8573) = $8,573

Therefore, $8,573 + $10,000 = $18,573

Effective Discount will be:

= (20000 - 18573)/20000 × 100

= 1427/20000 × 100

= 0.07135

= 7.135%

3) PV = FV [PVF10,2] = $10,000(0.8264) = $8,264

Therefore, $8,264 + $10,000 = $18,264

Effective Discount will be:

= (20000 - 18264)/20000 × 100

= 1736/20000 × 100

= 0.0868 × 100

= 8.68%

4) PV = FV [PVF12,2] = $10,000(0.7972) = $7,972

Therefore, $7,972 + $10,000 = $17,972

Effective Discount will be:

= (20000 - 17972)/20000 × 100

= 2028/20000 × 100

= 0.1014 × 100

= 10.14%