James Wilson wants to purchase a set of furniture worth $5,000. He plans to finance the furniture for three years. The furniture store tells James that the interest rate is only 1% per month, and his monthly payment is computed as follows.
Installment period = 36 months.
Interest = 36(0.01) ($5,000) = $1,800. Loan processing fee = $25.
Total amount owed = $5,000 + $1,800 + $25 = $6,825.
Monthly payment = $6,825/36 = $189.58. per month
(a) What is the annual effective interest rate that James is paying for his loan transaction What is the nominal interest (annual percentage rate) for the loan
(b) James bought the furniture and made 24 monthly payments. Now he wants to pay off the remaining installments in one lump sum (at the end of 24 months). How much does he owe the furniture store