SCI borrows SFr million from Credit Suisse for one year at 12% interest. Interest is prepaid. What is the effective SFr interest rate on SCI's loan?

Question

Quizplus · Accepted Answer

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

Effective Interest Rate = (Interest Paid/Principal) x (365/Days of Loan)

Here, the interest paid is 12% of the principal, which is SFr million = 0.12 x 1000000 = SFr 120,000.

The days of loan is one year, which is equivalent to 365 days.

Therefore, the effective interest rate is:

Effective Interest Rate = (120000/1000000) x (365/365) = 0.12 or 12%.

Hence, the correct answer is B.

SCI Borrows SFr Million from Credit Suisse for One Year