Von Hayek's Kayaks can borrow $12,500 for 60 days at a cost of $220 interest. What is the effective rate of interest?
A)Less than 9.9%
B)More than 9.9% but less than 10%
C)More than 10.5% but less than 11.5%
D)More than 11.5%

Question

Quizplus · Accepted Answer

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

Effective Rate = (Interest / Principal) x (365 / Days)

Where:
Interest = $220
Principal = $12,500
Days = 60

Plugging in the values, we get:

Effective Rate = (220 / 12500) x (365 / 60)
Effective Rate = 0.0352 x 6.083
Effective Rate = 0.2142 or 21.42%

Therefore, the effective rate of interest is more than 10.5% but less than 11.5%, which corresponds to choice C.

Von Hayek's Kayaks Can Borrow $12,500 for 60 Days at a Cost