If you sign a simple discount note for $2500 at a bank rate for 7%, for 3 months, what is the effective interest rate?

To find the effective interest rate on a simple discount note, we need to use the formula:

Effective Interest Rate = (Discount / Face Value) * (360 / Time),

where "Discount" is the difference between the face value of the note and the amount received, "Face Value" represents the original amount of the note, and "Time" is the term of the note in days.

In this case, we are given:
- Face Value (FV) = $2500
- Bank Rate = 7%
- Time = 3 months = 3 * 30 days = 90 days

First, calculate the discount using the bank rate:

Discount = Face Value * Bank Rate
= $2500 * 7%
= $2500 * 0.07
= $175

Next, substitute the values into the formula:

Effective Interest Rate = (Discount / Face Value) * (360 / Time)
= ($175 / $2500) * (360 / 90)
= 0.07 * 4
= 0.28

Therefore, the effective interest rate on the simple discount note is 28%.

To find the effective interest rate of a simple discount note, we need to use the formula:

Effective Interest Rate = (Discount / Face Value) * (360 / Time)

Given:
Discount = $2500
Bank Rate = 7%
Face Value = $2500
Time = 3 months

First, let's calculate the discount amount using the bank rate:
Discount = Face Value * Bank Rate * Time
= $2500 * 7% * 3/12
= $2500 * 0.07 * 0.25
= $43.75

Now, let's calculate the effective interest rate:
Effective Interest Rate = (Discount / Face Value) * (360 / Time)
= ($43.75 / $2500) * (360 / 3)
= (0.0175) * 120
= 2.1%

Therefore, the effective interest rate of the simple discount note is 2.1%.

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