The agreement is offering an implied interest rate of 12.23%.
Interest rate may be defined as the extra amount that is earned on a certain amount by the investor when he lends money to a borrower. According to question Jacob borrowed $2138.41 from his friend, but he will return $2400 in three equal installments as $800 x 3 = $2400.
Therefore, there is an extra amount of $261.59, which he will be paying as an implied interest on the payment of the loan.
As 2138.41 is the 100% of the loan, we need to determine the percentage that 261.59 represents in order to know the interest rate. We can know it by using Unitary method that is
If 2138.41 = 100% then assume
261.59 = x%
So, x% = (261.59 x 100) / 2138.41
=> x% = 26159/2138.41
=> x% = 12.23 which is the interest rate.
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