Question

Henry takes out a $650 discounted loan with a simple interest rate of 12% for a period of 7 months. What is the effective interest rate? Give your answer as a percentage to the nearest percent.

a) 12%
b) 14%
c) 10%
d) 9%

Answer 1

To find the effective interest rate, calculate the interest accrued over the specified period using the formula I = P * r * t, and then calculate the effective interest rate using the formula r = (I/P) * 100%.

Step-by-step explanation:

To find the effective interest rate, we first need to calculate the interest accrued over the 7-month period. Using the formula I = P * r * t, where I is the interest, P is the principal, r is the interest rate, and t is the time in years, we can calculate the interest as follows: I = 650 * 0.12 * (7/12) = 39.00.

Now, we can calculate the effective interest rate using the formula r = (I/P) * 100%. Plugging in the values, we get: r = (39/650) * 100% = 6% (rounded to the nearest percent).

Therefore, the effective interest rate is 6%, which is not one of the given options.