Question

what is the effective interest rate of a simple discount note of 8000 at an ordinary bank discount rate of 11%, for 120 days?

Answer 1

11.41%

Step-by-step explanation:

Discount rate = 11%, M = 120 days = 3 month

Effective rate = [(1 + 11% / 3)^3] - 1

Effective rate = [(1 + 0.11/3)^3] - 1

Effective rate = [(1 + 0.0366667)^3] - 1

Effective rate = [(1.0366667)^3] - 1

Effective rate = 1.1140827371 - 1

Effective rate = 0.1140827371

Effective rate = 11.40827371%

Effective rate = 11.41%