A loan for P50,000 is to be paid in 3 years at the amount of P65,000. What is the effective rate of money? A. 9.01 % B. 9.14 % C. 9.31 % D. 9.41 %

9.01%
9.14%
9.31%
9.41%

The correct answer is A. 9.01 %.

The effective rate of money is the actual rate of interest paid or earned on a loan or investment, taking into account compounding. In this case, the loan is for P50,000 and is to be paid in 3 years at the amount of P65,000. This means that the borrower will pay P15,000 in interest over the 3 years. The effective rate of interest can be calculated using the following formula:

Effective rate = (1 + (Interest rate / Number of compounding periods per year))^Number of compounding periods per year – 1

In this case, the interest rate is 15,000 / 50,000 = 30%. The number of compounding periods per year is 12, since the loan is paid back monthly. Therefore, the effective rate of interest is:

Effective rate = (1 + (30 / 12))^12 – 1 = 9.01 %

The other options are incorrect because they do not take into account the fact that the loan is paid back over time. Option B is the annual interest rate, which is 30%. Option C is the simple interest rate, which is calculated by multiplying the principal amount by the interest rate and the number of years. Option D is the nominal rate of interest, which is the annual interest rate compounded annually.

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