Question

The effective rate of a $25,000 non-interest-bearing simple discount 10%, 90-day note is

A. 10.62%.
B. 10.8%.
C. 10.26%.
D. 10%.

Answer 1

For the answer to the question above, the $25,000 due in 90 days.
I'll use 365 days per year. 10% simple discount:
25000*0.10(90/365) = 616.44
Cash in hand at the beginning of the 90 days:
25000 - 616.44 = 24,383.56

Solve for r: 616.44 = 24383.56*r*(90/365)

r = 0.10252837 or the nearest answer is letter C. 10.26%
It is not exact because maybe he rounded off the 24383.56