Quote:

5. Acton can choose from two loan offers: $12,000 at 8% simple interest for 9 months; or a $12,000 9-month discounted loan at 7% discount. Based on the actual interest paid and the true rate on the discounted loan, which of the two loan offers will Acton choose? Explain your answer.

I=PRT

First offer = $12,000 x .08 x 9/12= $720

Second Offer= $12,000 x .07 x 9/12=$630

$12,000 - $630 = $11,370

630/11,370= 5.5%

But that was only for 9 months. For a full year, it would be 0.055*12/9= 7 and 1/3 percent.