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Banks sometimes quote interest rates in the form of add-on interest. In this case, if a 1-year loan is quoted

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Banks sometimes quote interest rates in the form of "add-on interest." In this case, if a 1-year loan is quoted with a 20% interest rate and you borrow $1,000, then you pay back $1,200. But you make these payments in monthly installments of $100 each. Suppose you take out a $1,000, 3-year loan using add-on interest with a quoted interest rate of 20% per year. What will your monthly payments be? (Total payments are $1,000 + $1,000 x .20 x 3 = $1,600.) What are the true APR and effective annual rate on this loan? Are they the same as in the previous problem?

Banks sometimes quote interest rates in the form of
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1.00 year 3.00 year Time period -1 Time period -2 Interest rate Amount Pay back 20% $1,000.00 S 1.200.00 Monthly insatallments-1S 100.00

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Fundamentals of Corporate Finance

Fundamentals of Corporate Finance

ISBN: 978-0078034640

7th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

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Question Posted: September 27, 2016 10:40:08
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