A sum of $2500 is due in 3 years. If the Banker's Discount is $450, what is the

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Question: A sum of $2500 is due in 3 years. If the Banker\'s Discount is $450, what is the rate of interest?

Options:

Correct Answer: 6%

Solution:

Rate = (Banker\'s Discount / (Principal × Time)) × 100 = (450 / (2500 × 3)) × 100 = 6%.

A sum of $2500 is due in 3 years. If the Banker's Discount is $450, what is the rate of interest?

A sum of $2500 is due in 3 years. If the Banker's Discount is $450, what is the rate of interest?

Step 1: Identify the values given in the problem. We have a sum of $2500 due in 3 years and a Banker's Discount of $450.
Step 2: Understand the formula for calculating the rate of interest using Banker's Discount. The formula is: Rate = (Banker's Discount / (Principal × Time)) × 100.
Step 3: Substitute the values into the formula. Here, Principal = $2500, Time = 3 years, and Banker's Discount = $450.
Step 4: Calculate the denominator (Principal × Time). This is 2500 × 3 = 7500.
Step 5: Now, substitute the values into the formula: Rate = (450 / 7500) × 100.
Step 6: Calculate the fraction: 450 / 7500 = 0.06.
Step 7: Multiply by 100 to find the rate: 0.06 × 100 = 6%.
Step 8: Conclude that the rate of interest is 6%.

Banker's Discount – The difference between the maturity value of a loan and the 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.
Time Value of Money – Understanding how money's value changes over time, particularly in the context of loans and interest.