Jill Jones borrowed $18,000 for 180 days from Sovereign Bank. The bank discounts the note at 8%. The effective interest rate to the nearest hundredth percent is:

Question

Quizplus · Accepted Answer

The effective interest rate can be calculated using the formula for the bank discount rate: Effective Interest Rate = (Discount / (Loan Amount - Discount)) * (360 / Number of Days). The discount is calculated as $18,000 * 0.08 * (180/360) = $720. The effective interest rate is ($720 / ($18,000 - $720)) * (360 / 180) = 8.33%.

Jill Jones Borrowed $18,000 for 180 Days from Sovereign Bank