Answer to Question #206068 in Financial Math for janice

Question

 An investment is discounted for 28 days at a simple rate of discount of 4.5% per annum. Calculate the annual effective rate of interest. 

Answer 1

The investment is discounted at a simple rate of discount for 28 days at 4.5% per annum simple. This means that a sum due in 28 days time will have a present value of 100(1-(28/365)*0.045)) = 99.6547. To find the annual effective rate of interest you now need the value of i that satisfies the equation of value 99.9547(1+i)^28/365 = 100. Solving this gives an annual effective rate of 4.611% pa Eff.