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A man has a simple discount note for $6,300, at an ordinary bank discount rate of 8.72 %, for 40 days. What is the effective interest rate? Round to the nearest tenth of a percent. The effective interest rate is nothing %. (Round to the nearest tenth of a percent as needed.)
Expert Answer
Solution :- Interest = 6300 * 8.72 % * 40 / 360
= $ 61.04 (approx).
Principal = Amount – Interest.
= 6300 – 61.04
= $ 6238.96 (approx).
Effective interest rate = 61.04 / (6238.96 * 40 / 360)
= 61.04 / 693.22
= 0.0881 i.e., 8.81 %
Conclusion :- Effective interest rate on discount note = 8.81 % (approx).
