What annual interest rate will the third party receive for the investment?

[briskanka]

A new University graduate wanted to live expensive life and therefore bought himself a new Mercedes Benz. But things got rough so he decides to sell the car to an automobile company. He accepted a 270-day note for 3,500 Euros at 10% simple rate interest as full payment amount and the interest to be paid at the end of the 270 days. But sixty days later, he found that he needs money and so so sells the note to a third party for 3,550 Euros.
What annual interest rate will the third party receive for the investment?

 

[jvicens]

I would like to provide some insight on the situation described in this forum post. First of all, it is important to note that the transaction between the University graduate and the automobile company is known as a promissory note, which is a written promise to pay a specific amount of money at a certain time in the future. In this case, the University graduate promised to pay 3,500 Euros in 270 days, with an additional 10% simple interest to be paid at the end of the 270 days.

However, after only 60 days, the University graduate decided to sell the note to a third party for 3,550 Euros. This means that the third party will receive the full payment of 3,500 Euros plus an additional 50 Euros in interest. In order to calculate the annual interest rate received by the third party, we can use the simple interest formula: I = PRT, where I is the interest, P is the principal amount (3,500 Euros), R is the annual interest rate, and T is the time in years.

In this case, we know that I = 50 Euros and T = 270/365 = 0.74 years (since 270 days is approximately 0.74 years). Plugging in these values into the formula, we can solve for R, the annual interest rate:

50 = 3,500 x R x 0.74
R = 50 / (3,500 x 0.74)
R = 0.018 (or 1.8%)

Therefore, the third party will receive an annual interest rate of 1.8% for their investment. It is important to note that this is a simple interest rate, which means that the interest is calculated based on the original principal amount of 3,500 Euros, not on the increasing amount of 3,550 Euros.

I hope this explanation helps clarify the situation. It is important for individuals to carefully consider their financial decisions and the consequences they may have in the future. Thank you for bringing this scenario to our attention.