A discount electronics store offers to let you pay for a $1,000 stereo in 12 equal $90
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Question:
A discount electronics store offers to let you pay for a $1,000 stereo in 12 equal $90 installments. The store claims that since you repay $1,080 in 1 year, the $80 finance charge represents an 8% annual rate. This would be true if you repaid the loan in a single payment at the end of the year. But since you start repayment after 1 month, this is an amortized loan, and 8% is not the correct rate. What is the annual nominal compounding rate for this loan?
Related Book For
Personal Finance An Integrated Planning Approach
ISBN: 978-0136063032
8th edition
Authors: Ralph R Frasca
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