Time Money Value question

CFA Level I Quant
#1

The Duff brewery has an invoice receivable of $ 2,000,000 to be paid in 90 days. The Last National Bank offers Duff to advance the total of said invoice today, charging a bank discount rate of 12% per year. How much would Duff get if he decides to go into this operation?

a. $1,940,000
b. $1,941,748
c. $1,942,000

Okay, this is what I did:

I just find the 90-days effective rate from the nominal rate, and then discount it, like this:

Effective rate = ((1.12)^(1/4))-1 = 0.0287373
So, 2 000 000 / (1.0287373) = 1 944 130.926.

There is no answer, is there something I am missing or doing wrong?

Thanks in advance.

Question Time Money Value
#2

You’re computing the answer as if the discount were an effective, add-on rate.

This is identified as a bank discount rate (BDR).

Do you know the BDR convention?

#3

Oh dude you got it. discount basis yield.
You are the best.

I love you.

#4

My pleasure.

I blush. :blush: