Problem 8-6 Effective rate on discounted loan [LO2] Sol Pine borrows $5,000 for

Question

Problem 8-6 Effective rate on discounted loan [LO2] Sol Pine borrows $5,000 for one year at 13 percent interest. What is the effective rate of interest if the loan is discounted? (Use a 360-day year. Do not round intermediate calculations Input your answer as a percent rounded to 2 decimal places.) Input variables: Amount ofloan Loan term Interest rate Number of days in a year $5,000 360 days 13 percent 360 Solution and Explanation: Effective rateon a discount loan (Interest/(Principal - Interest)x (Days per year/Days loan is outstanding) Interest Effective rate on discounted loan

Explanation / Answer

CALCULATION OF EFFECTIVE RATE OF INTEREST Loan Amount = $                        5,000 Long Term =                                360 Days Interest Rate 13% Days in year 360 Days Interest Amount = $ 5,000 X 13% = $                            650 Effective Rate of Discount Loan = (Interest / (Principal -Interest) X (Days In year / Days loan of outstanding) Effective Rate of Discount Loan = ($ 650 / ($ 5,000 - $ 650 ) X (360 /360) Effective Rate of Discount Loan = ($ 650 / $ 4,350 ) X 1 Effective Rate of Discount Loan = 0.1494 X 1 Effective Rate of Discount Loan = 0.1494 Effective Rate of Discount Loan in % = 14.94% Answer = Effective rate on discount on loan = 14.94%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---