An interest bearing promissory note for 90 days at 5.6% p.a. has a face value of $120,000. If the note is discounted 20 days ofter the issue date at a rate of 6.8% p.a., calculate the amount of discount.

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Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.