A sum of $12000 is due in 5 years. If the bankers discount is $3000, what is the

A sum of $12000 is due in 5 years. If the bankers discount is $3000, what is the rate of interest?

A sum of $12000 is due in 5 years. If the bankers discount is $3000, what is the rate of interest?

Correct Answer: 5%

Step 1: Understand that the total amount due in 5 years is $12000.
Step 2: Know that the bankers discount is $3000.
Step 3: Calculate the Present Value by subtracting the bankers discount from the total amount due: Present Value = $12000 - $3000 = $9000.
Step 4: Use the formula for the rate of interest: Rate = (Bankers Discount × 100) / (Total Amount × Time).
Step 5: Substitute the values into the formula: Rate = ($3000 × 100) / ($12000 × 5).
Step 6: Calculate the denominator: $12000 × 5 = $60000.
Step 7: Calculate the rate: Rate = ($3000 × 100) / $60000.
Step 8: Simplify the calculation: Rate = $300000 / $60000 = 5%.
Step 9: Conclude that the rate of interest is 5%.

Bankers Discount – Understanding the concept of bankers discount, which is the difference between the principal amount and the present value.
Present Value Calculation – Calculating the present value from the future sum due and the bankers discount.
Interest Rate Calculation – Using the formula for calculating the rate of interest based on the bankers discount and the time period.