Justin discounts a 115-day note for $26,000 at 8.5%. The effective rate of interest to the nearest tenth percent is:
A) .8%
B) .87%
C) 8.5%
D) 8.7%
E) None of these

Question

Quizplus · Accepted Answer

To find the effective rate of interest, we need to first calculate the interest earned on the note. The formula for calculating the interest on a note is:

Interest = (Principal x Rate x Time) ÷ 360

Where:
- Principal = $26,000
- Rate = 8.5%
- Time = 115 days

Substituting these values into the formula, we get:

Interest = (26,000 x 0.085 x 115) ÷ 360
Interest = $731.04

So the interest earned on the note is $731.04. To find the effective rate of interest, we need to divide the interest earned by the amount of money received for the note:

Effective Rate = (Interest ÷ Amount) x (360 ÷ Days)

Where:
- Amount = $26,000
- Days = 115

Substituting these values into the formula, we get:

Effective Rate = (731.04 ÷ 26,000) x (360 ÷ 115)
Effective Rate = 0.0281 x 3.1304
Effective Rate = 0.0880 or 8.8%

Rounding to the nearest tenth percent, we get an effective rate of 8.7%, which corresponds to answer choice (D).

Justin Discounts a 115-Day Note for $26,000 at 8