Answer (D) 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
Answer (A) is incorrect because The amount of $275,229 results from adding, rather than subtracting, the stated rate in the denominator.
Answer (B) is incorrect because The amount of $327,000 results from treating the transaction as a simple interest loan rather than as a discounted loan.
Answer (C) is incorrect because The amount of $300,000 is the amount needed.
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