In a bank, there is a system named Discounted Note such that the bank

Question

In a bank, there is a system named Discounted Note such that the bank lends the loan under the condition that the bank takes the pre-interest in advance. Someone borrowed $20,000 using the Discounted Note but in fact he took $19,750. If an annual interest rate applied quarterly simple, what is the annual interest rate?

A. 2.5%
B. 2.75%
C. 3%
D. 4%
E. 5%

A. 2.5%
B. 2.75%
C. 3%
D. 4%
E. 5%

ThatDudeKnows · Answer

If we borrowed $20,000 but only received $19,750, that means we pre-paid $250. $250 is the quarterly interest, so the annual interest is 4x that, or $1,000. 1000/20000 = 5%.

Answer choice E.

DiveshR · Answer

Bunuel , the phrasing of this question: "annual rate applied quarterly simple" is very confusing.

If said person borrowed 20,000 but took back 19,750, then isn't it natural to assume that 250 was the interest for the whole year?

Thanks in advance!

Krunaal · Answer

It won't be fair to assume that the $250 was interest for whole year because it is clearly mentioned that interest applied was quarterly simple interest - it is possible that the borrower repaid the entire amount in a quarter, and we are just asked to find out what would be the annual interest rate i.e. 1.25% * 4 = 5%

In a bank, there is a system named Discounted Note such that the bank

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In a bank, there is a system named Discounted Note such that the bank

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