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What is the effective rate of a 3-month discounted loan borrowing of 4 million if the interest rate is 10 percent? a) some answer given b) 10

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What is the effective rate of a 3-month discounted loan borrowing of 4 million if the interest rate is 10 percent?

a) some answer given

b) 10.25%

c) 11.11%

d) 10.38%

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Computation of the effective interest rate (EAR):-

EAR = (1+rate/n)^n-1

Here, n = 4 periods (quarterly)

EAR = (1+10%/4)^4-1

= 1.1038 - 1

= 10.38%

Hence, the correct option is d) 10.38%

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