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.