A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $20,000, the interest for the year will be $3,400. Because you must repay a total of $23,400 in one year, the finance company requires you to pay $23,400/12, or $1,950 per month over the next 12 months. Is this a 17 percent loan? What rate would legally have to be quoted? What is the effective annual rate?

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Year Cash Flow $1,900 2,300 4,500 5,100 1 3 4