If the Banker's Discount on a sum of $4000 for 1 year at 9% is $360, what is the

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Question: If the Banker\'s Discount on a sum of $4000 for 1 year at 9% is $360, what is the effective interest rate?

Options:

Correct Answer: 9%

Solution:

Effective Interest Rate = (Banker\'s Discount / Principal) × 100 = (360 / 4000) × 100 = 9%.

If the Banker's Discount on a sum of $4000 for 1 year at 9% is $360, what is the effective interest rate?

If the Banker's Discount on a sum of $4000 for 1 year at 9% is $360, what is the effective interest rate?

Step 1: Identify the Banker's Discount, which is given as $360.
Step 2: Identify the Principal amount, which is given as $4000.
Step 3: Use the formula for Effective Interest Rate: Effective Interest Rate = (Banker's Discount / Principal) × 100.
Step 4: Substitute the values into the formula: Effective Interest Rate = (360 / 4000) × 100.
Step 5: Calculate the division: 360 divided by 4000 equals 0.09.
Step 6: Multiply the result by 100: 0.09 × 100 equals 9%.
Step 7: Conclude that the Effective Interest Rate is 9%.

Banker's Discount – The difference between the face value of a loan and the amount actually received by the borrower, calculated based on the interest rate and time period.
Effective Interest Rate – The actual interest rate that a borrower pays after accounting for the Banker's Discount.
Principal – The original sum of money borrowed or invested, in this case, $4000.