A local finance company quotes an interest rate of 17.1 percent on one-year loans. So, if you
Question:
A local finance company quotes an interest rate of 17.1 percent on one-year loans. So, if you borrow $20,000, the interest for the year will be $3,420. Because you must repay a total of $23,420 in one year, the finance company requires you to pay $23,420/12, or $1,951.67, per month over the next 12 months. Is the interest rate on this loan 17.1 percent? What rate would legally have to be quoted? What is the effective annual rate?
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The time line is To find the APR and EAR we need to use the actual cas...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan
Related Video
Interest, debt, finance, and capital markets are all important concepts in the world of economics and business. Interest is the cost of borrowing money, and it is typically expressed as a percentage of the amount borrowed. Debt is the money that is borrowed, and it has to be repaid with interest. Finance is the study of how individuals, companies, and organizations manage their money and investments. Capital markets are the places where companies and governments can raise money by selling stocks and bonds to investors. These markets play an important role in the overall economy by helping to fund investment and growth.
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