The effective rate of a $25,000 non-interest-bearing simple discount 10%, 90-day note is
To find the effective rate of a non-interest-bearing simple discount note, you need to first calculate the discount amount and then determine the effective interest rate using the formula:
Effective Rate = (Discount Amount / Face Value) * (365 / Number of Days)
Given:
Face Value (FV) = $25,000
Rate of Discount (D) = 10%
Number of Days (N) = 90
Step 1: Calculate the discount amount (DA):
Discount Amount (DA) = Face Value * (Rate of Discount / 100)
DA = $25,000 * (10 / 100)
DA = $2,500
Step 2: Calculate the effective rate:
Effective Rate = (Discount Amount / Face Value) * (365 / Number of Days)
Effective Rate = ($2,500 / $25,000) * (365 / 90)
Effective Rate = 0.1 * 4.0556
Effective Rate = 0.40556 or 40.556%
Therefore, the effective rate of the $25,000 non-interest-bearing simple discount 10%, 90-day note is approximately 40.556%.