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A loan of $20,000 is obtained from the bank. The promissory note specifies that $2500 interest is to be paid at the end of the year.
-What is the effective interest rate of this loan?

Question

Quizplus · Accepted Answer

The effective interest rate is calculated by dividing the interest amount by the principal amount. Here, it is $2500/$20000 = 0.125 or 12.50%.

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