Question

If a man takes out a discounted loan of $ 5000 for 8 months and will repay 5500, he is charged a discount rate of ……% (approximate to the nearest 2 decimals and put it in %)

Answer 1

We can calculate the discount rate by the following formula

Future Value(FV) = Present Value (1 + r)^t

where

r = discount rate

t - time in years

We are given,

FV = 5500

Pv = 5000

t = 8/12 = 0.6667

r = ?

Putting these value in the above equation

FV = PV (1 + r)^t

5500 = 5000 (1 + r)^.67

5500 / 5000 = (1+r)^.67

1.1 = (1+r)^.67

Solving using the calculator we get,

r = 15.3690% or 15.37%

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