A five-year note has a payment of $2,000 at the end of each year for five years. What is the effective interest rate on the loan if the present principal of the note is $8,000?

To find the effective interest rate on the loan, we need to determine the interest amount paid over the five-year period.

First, let's calculate the total payment made over the five years. We're given that the payment at the end of each year is $2,000. Since there are five years, the total payment made will be:

Total payment = Payment per year × Number of years
Total payment = $2,000 × 5
Total payment = $10,000

Next, let's calculate the interest paid over the five years. The interest paid is simply the difference between the total payment and the principal amount:

Interest paid = Total payment - Principal amount
Interest paid = $10,000 - $8,000
Interest paid = $2,000

Now, let's find the effective interest rate. The effective interest rate is the interest paid divided by the principal amount, expressed as a percentage:

Effective interest rate = (Interest paid / Principal amount) × 100
Effective interest rate = ($2,000 / $8,000) × 100
Effective interest rate = 0.25 × 100
Effective interest rate = 25%

Therefore, the effective interest rate on the loan is 25%.