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 value of interest plug in the equation for calculating loan's effective interest rate is 0.085. Thus, option C is correct.

The loan effective interest rate has been given as the rate that has been effectively charged on the principal amount. In the calculation of the interest, the percentage sign has not been considered.

Thus, the interest rate has been converted to the values by dividing the percent to 100.

The effective interest rate (EIR) for the equation has been:

$EIR=\dfrac{\%\;rate}{100}$

The given interest rate has been 8.5 % . The value plug in the equation has been,

$EIR=\dfrac{8.5}{100}\\EIR=0.085$

The value of interest plug in the equation for calculating loan's effective interest rate is 0.085. Thus, option C is correct.

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