Question #240581

A businessman borrows P20,000 for his operations. One financial institution is willing to lend him money

for one year at a discounted interest rate of 10.5% per annum. What is the effective rate?

for one year at a discounted interest rate of 10.5% per annum. What is the effective rate?

Expert's answer

Here, *P* = 1000, *r* = 0.08, and *m* = 1.

Thus, *i = r* = 0.08 and *n* = 3, so

"A=P(1+r\/m)^n"

"=1000(1+0.08\/1)^3"

"=1000(1.08)^3"

=1259.71

or $1259.71.

once again but m value is changed

Here, *P* = 1000, *r* = 0.08, and *m* = 2.

Thus, and *n* = (3)(2) = 6, so

"A=P(1+r\/m)^n"

"=1000(1+0.08\/2)^3"

"=1000(1.04)^3"

$1265.32.

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