Question

11. Kenneth's Arrows and Bows borrows $20,000 for one year at an 11% annual interest rate. What is the effective rate of interest if the loan is discounted? (Use 360 days in a year.)

• Less than 11.5%

• More than 11.5% but less than 12.6%

• More than 12.6% but less than 13.5%

• More than 13.5%

Answer 1

Effective rate of interest:

= 1/(1-11%)-1

= 0.1236

Hence, correct option is “More than 11.5% but less than 12.6%”