A sum of $6000 is due in 3 years. If the Banker's Discount is $540, what is the

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Question: A sum of $6000 is due in 3 years. If the Banker\'s Discount is $540, what is the rate of interest?

Options:

Correct Answer: 9%

Solution:

Rate = (Banker\'s Discount / (Principal × Time)) × 100 = (540 / (6000 × 3)) × 100 = 3%.

A sum of $6000 is due in 3 years. If the Banker's Discount is $540, what is the rate of interest?

A sum of $6000 is due in 3 years. If the Banker's Discount is $540, what is the rate of interest?

Step 1: Identify the given values. The sum due (Principal) is $6000, the Banker's Discount is $540, and the time is 3 years.
Step 2: Understand the formula for calculating the rate of interest using Banker's Discount: Rate = (Banker's Discount / (Principal × Time)) × 100.
Step 3: Substitute the values into the formula. Replace Banker's Discount with 540, Principal with 6000, and Time with 3.
Step 4: Calculate the denominator: 6000 × 3 = 18000.
Step 5: Now, divide the Banker's Discount by the result from Step 4: 540 / 18000.
Step 6: Perform the division: 540 / 18000 = 0.03.
Step 7: Convert the decimal to a percentage by multiplying by 100: 0.03 × 100 = 3%.
Step 8: Conclude that the rate of interest is 3%.

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 – The principle that money available now is worth more than the same amount in the future due to its potential earning capacity.