Question

At www.daveramsey’s Financial Peace University (FPU), Dave recommends Seven Baby Steps. One of these steps is “Pay off debt using the debt snowball.” After graduating from FPU, Courtney Lopez-Munoz is trying to calculate the effective interest rate she is paying for a $1,849 simple discount note at 6% for 17 months. What rate has she been paying?

Answer 1

Answer: Effective interest rate : 6.58%.

Explanation:

Simple interest rate = principle × rate × time period

                                 = $1,849 ×  0.06 × $\frac{17}{12}$

                                 = $157.165

When move out from the bank:

We will be left with(1849 - 157.165) = $1691.835

∴ Effective interest rate = $\frac{157.165}{1691.835\times \frac{17}{12} }$

                                       = 0.0658

                                       = 6.58%