A sum of $25000 is due in 2 years. If the bankers discount is $5000, what is the

A sum of $25000 is due in 2 years. If the bankers discount is $5000, what is the rate of interest?

A sum of $25000 is due in 2 years. If the bankers discount is $5000, what is the rate of interest?

Correct Answer: 10%

Step 1: Understand that the total amount due in 2 years is $25000.
Step 2: Recognize that the bankers discount is $5000.
Step 3: The bankers discount is the interest that will be paid on the sum over the 2 years.
Step 4: To find the rate of interest, we use the formula: Rate = (Discount × 100) / (Principal × Time).
Step 5: Here, the Discount is $5000, the Principal is $25000, and the Time is 2 years.
Step 6: Plug the values into the formula: Rate = (5000 × 100) / (25000 × 2).
Step 7: Calculate the denominator: 25000 × 2 = 50000.
Step 8: Now calculate the rate: Rate = (5000 × 100) / 50000.
Step 9: Simplify the calculation: Rate = 500000 / 50000 = 10%.
Step 10: Therefore, the rate of interest is 10%.

Bankers Discount – The bankers discount is the interest deducted in advance on a loan or sum due, calculated on the face value.
Rate of Interest Calculation – The formula for calculating the rate of interest based on the discount and the present value of the sum due.
Time Value of Money – Understanding how the time period affects the calculation of interest and discount.