Chapter 10, Problem 12CR

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# The actual interest rate charged on a discounted note is known as the_________, or _________, interest rate. (10-11)

To determine

To fill: The blanks given in the statement “The actual interest rate charged on a discounted note is known as the__________ or __________ interest rate.”

Explanation

The effective interest rate is the rate which shows the effect of a number of compounding periods made during the life of the investment. It shows the rate calculated by using the number of compounding periods made during a single year. It always shows the yearly rate.

Consider an example:

Compute the effective rate of interest.

The amount of interest to be $297.11, the purchase price to be$74,702.89, time duration to be 4 weeks.

Evaluate the time as

Time=Number of weeks of a loan52=452

Substitute $297.11 for the amount of interest,$74,702

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