Question

Rick discounts a 100-day note for $25,000 at 13%. The effective rate of interest to the nearest hundredth percent is

A. 13.48%.
B. 13.03%.
C. 13.02%.
D. 13.49%.

Answer 1

First we have to calculate the amount of interest. This can be done by using the interest formula, I = P x R x T.

= 25,000 x 0.13 x (100/365)
= 902.78

This will be deducted from the principal amount, which is 25,000.

= 24,097

Last, we plug our values in to the effective rate formula for interest:


`(Interest)/(Proceeds x Time of Note)`

902.78/6693.6722

= 13.487066

After rounding, we come to our final answer, which is D, 13.49%.