Question

Mr. Jones borrows $2,600 for 90 days and pays $33 interest. What is his effective rate of interest? (Use 360 days in a year. Round your answer to 2 decimal places.)

a) 5.62%

b) 5.08%

c) 9.78%

d) 7.38%

Answer #1

Solution: | |||

Answer is b. 5.08% | |||

Working Notes: | |||

Effective Interest Rate | |||

=($ Paid in Interest / $ Amount borrowed) X (360 / borrowed period) | |||

=($33 / $2600) X (360 /90) | |||

=0.050769231 | |||

5.08% | |||

Notes: | Effective interest rate is the annual rate of interest for the borrowed amount | ||

Please feel free to ask if anything about above solution in comment section of the question. |

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