You are getting a discount interest loan of $25,000 for one year. The stated rate of...
You are getting a discount interest loan of $25,000 for one year. The stated rate of interest is 6%. Calculate the effective interest rate ______%.
- A. 6.83
- B. 6.38
- C. 6.12
- D. 6.00
You can borrow $75,000 for six months at a stated annual rate of 8%. Calculate the effective annual interest rate _______%.
- A. 16.64
- B. 8.50
- C. 8.16
- D. 8.00
Homework Answers
a. The effective interest rate will be as follows:
= ( 1 + 0.06 / 1 )1 - 1
= 6.00%
So the correct answer is option D i.e. 6.00
b. The effective interest rate will be as follows:
= ( 1 + r / m )m -1
= ( 1 + 0.08 / 2 )2 - 1
= 8.16%
So the correct answer is option C i.e. 8.16%
Feel free to ask in case of any query relating to this question
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