1. **State the problem:** Calculate the effective interest rate of a $25,000 non-interest-bearing, simple discount note with a 10% discount rate over 90 days. 2. **Formula and explanation:** The effective interest rate for a simple discount note is given by: $$\text{Effective Rate} = \frac{\text{Discount}}{\text{Proceeds}} \times \frac{360}{\text{Days}}$$ where: - Discount = Face value $ \times $ Discount rate $ \times $ Time fraction - Proceeds = Face value - Discount - Time fraction = $ \frac{\text{Days}}{360} $ (banker's year) 3. **Calculate the discount:** $$\text{Discount} = 25000 \times 0.10 \times \frac{90}{360} = 25000 \times 0.10 \times 0.25 = 6250 \times 0.25 = 625$$ 4. **Calculate the proceeds:** $$\text{Proceeds} = 25000 - 625 = 24375$$ 5. **Calculate the effective rate:** $$\text{Effective Rate} = \frac{625}{24375} \times \frac{360}{90} = \frac{625}{24375} \times 4$$ 6. **Simplify the fraction:** $$\frac{625}{24375} = \frac{\cancel{625}^1}{\cancel{625}^{39}} = \frac{1}{39}$$ 7. **Calculate:** $$\text{Effective Rate} = \frac{1}{39} \times 4 = \frac{4}{39} \approx 0.1026 = 10.26\%$$ **Final answer:** The effective rate is 10.26 percent.