If the Banker's Discount on a bill of $800 is $16, what is the rate of interest

If the Banker's Discount on a bill of $800 is $16, what is the rate of interest for 4 months?

If the Banker's Discount on a bill of $800 is $16, what is the rate of interest for 4 months?

Correct Answer: 6%

Step 1: Identify the given values. The Banker's Discount (BD) is $16, the Principal amount is $800, and the Time is 4 months.
Step 2: Convert the time from months to years. Since there are 12 months in a year, 4 months is equal to 4/12 years.
Step 3: Use the formula for the rate of interest: Rate = (BD x 100) / (Principal x Time).
Step 4: Substitute the values into the formula: Rate = (16 x 100) / (800 x 4/12).
Step 5: Calculate the denominator: 800 x (4/12) = 800 x (1/3) = 800/3 = approximately 266.67.
Step 6: Now calculate the rate: Rate = (16 x 100) / 266.67.
Step 7: Perform the calculation: Rate = 1600 / 266.67 = approximately 6%.

Banker's Discount – The difference between the face value of a bill and its present value, calculated using the interest rate over a specific time period.
Rate of Interest Calculation – The formula to calculate the rate of interest based on the banker's discount, principal amount, and time period.
Time Conversion – Understanding how to convert months into years for interest calculations.