Mr. Jones borrows $4,500 for 90 days and pays $75 interest. What is his approximate effective rate of interest?
A)9.3%
B)6.7%
C)11.7%
D)None of these options

Question

Quizplus · Accepted Answer

To calculate the approximate effective rate of interest, we need to use the formula:

Effective Rate = (Interest / Principal) x (365 / Number of Days) x 100%

Plugging in the given values, we get:

Effective Rate = (75 / 4,500) x (365 / 90) x 100%
Effective Rate = 0.0167 x 4.0556 x 100%
Effective Rate = 6.78% (rounded to the nearest tenth)

Therefore, the closest answer choice is B) 6.7%.

Mr Jones Borrows $4,500 for 90 Days and Pays $75