Question

When calculating a loan’s effective interest rate, if the nominal rate is 8. 5%, what value of i do you plug into your equation? a. 8. 5 b. 0. 85 c. 0. 085 d. 1. 85.

Answer 1

The nominal rate to plug in will be 0.085.

Given to us, the nominal rate is 8.5%,

The value to plug into your equation,

The equation can be simple interest or compound interest in both cases the value of the nominal rate to the plugin will be the same.

Thus, the nominal rate is 8.5% can be written as

$\begin{aligned}Nominal rate&= 8.5\%\\&= \dfrac{8.5}{100} \\&= 0.085\end{aligned}$

Hence, the nominal rate to plug in will be 0.085.

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