
Serge M. answered 02/11/17
Tutor
5
(11)
Professor of Accounting, retired. Ph.D., CPA
Normally the bank discounts the maturity value of the settlement at the annual interest rate. But here it is not clear if the bank is simply discounting the $50,000 at the full 33% If the discount is simply 33%, then the offer is to pay
$50,000 / 1.33 = $37,593.98
The above computation reflects an annual interest rate of 198% (.33 * 6 = 1.98).
The normal computation is:
Maturity value $50,000.00
Less 50,000 * .33 * 2/12 785.71
Proceeds $49,214.29