Question

What is the effective rate of a $30,000 non-interest-bearing simple discount 5%, 60-day note?

Answer 1

Answer:

The effective rate is R=5.04%

Step-by-step explanation:

Consider the provided information.

We need to find the effective rate of a $30000.

Interest Rate is 5% or 0.05.

Sometimes bankers calculate interest on a 360-day year for comfort.

Therefore, I can be calculated as:

I = Principal x Interest Rate x Frequency of a year

Principal = 30000, Interest Rate = 0.05 and Frequency of a year = 60÷360

$I=30,000\times0.05\times \frac{60}{360}$

$I=1500\times \frac{1}{6}$

$I=250$

Thus, cash in hand at the beginning of 60 days is:

p = 30,000 − 250 = 29750

The effective rate can be calculated as:

$R=\frac{I}{pt}$

$R=\frac{250}{29,750\times \frac{60}{360}}$

$R=\frac{250}{4958.3}$

$R=0.0504$

or

R=5.04%

Hence, the effective rate is R=5.04%

Answer 2

30000 due at the end of 60 years
I'll assume that the number of days in year is 360
I=30,000×0.05×(60÷360)=250

Cash in hand at the beginning of 60 days is
30,000−250=29,750

The effective rate is
R=I÷pt
R=250÷(29,750×(60÷360))
R=0.0504×100
R=5.04%