Question

In the previous question, we determined that if you borrow $3,000 on an 8% discounted loan for 9 months, the amount you actually receive will be $2,820. Given this, what is the effective interest rate on the loan you receive? Express your answer as a percentage rounded to the nearest tenth of a percent if necessary,

Answer 1

We can use the formula

$I=\text{Prt}$

again to solve this problem.

We had

I = $180

P = $3000

r = effective interest rate (we need to find)

t = 0.75 years

Substituting, we get;

$\begin{gathered} I=\text{Prt} \\ 180=3000r(0.75) \\ r=\frac{180}{3000(0.75)} \\ r=0.045 \end{gathered}$

Converted to a percentage, we have:

$r=0.045\times100=4.5\%$

Answer4.5%