Loan Amount: $15,000
Method of payment: discount basis
Amount of Interest : $650
Term of loan: 1 year
Effective Rate of Interest (to the nearest tenth): %
100(650/15,000) = ?
To calculate the effective rate of interest on a discount basis, we need to divide the interest amount by the loan amount and divide the result by the term of the loan. Here are the steps to find the effective rate of interest:
Step 1: Divide the interest amount by the loan amount: $650 / $15,000 = 0.0433.
Step 2: Divide the result from step 1 by the term of the loan, which is 1 year: 0.0433 / 1 = 0.0433.
Step 3: Convert the result from step 2 into a percentage by multiplying by 100: 0.0433 * 100 = 4.33%.
Therefore, the effective rate of interest on the loan, on a discount basis, is approximately 4.3%.
To calculate the effective rate of interest on a loan, we need to use the formula:
Effective Rate of Interest = (Interest / Loan Amount) * (365 / Term of Loan)
In this case, the interest is $650, the loan amount is $15,000, and the term of the loan is 1 year.
Plugging these values into the formula, we get:
Effective Rate of Interest = ($650 / $15,000) * (365 / 1)
Simplifying this equation:
Effective Rate of Interest = 0.043 * 365
Effective Rate of Interest ≈ 15.695
Therefore, the effective rate of interest on the loan, rounded to the nearest tenth, is approximately 15.7%.