A sum of money is due in 2 months. What is the discount rate,which is equivalent to 18% interest rate
To find the discount rate equivalent to an 18% interest rate, we need to calculate the effective annual interest rate.
Since the sum of money is due in 2 months, we first need to find the monthly interest rate by dividing the annual interest rate by 12:
Monthly interest rate = 18% / 12 = 1.5% (0.015 as a decimal).
Next, we calculate the interest rate for 2 months by multiplying the monthly interest rate by the number of months:
2-month interest rate = 0.015 * 2 = 0.03 (3% as a decimal).
Finally, to find the discount rate equivalent to the 2-month interest rate, we subtract the 2-month interest rate from 1:
Discount rate = 1 - 0.03 = 0.97 (or 97% as a percentage).
Therefore, the discount rate equivalent to an 18% interest rate is 97%.