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