A local finance company quotes an interest rate of 18 percent on one-year loans. So, if you
Question:
A local finance company quotes an interest rate of 18 percent on one-year loans. So, if you borrow $29,000, the interest for the year will be $5,220. Because you must repay a total of $34,220 in one year, the finance company requires you to pay $34,220/12, or $2,851.67, per month over the next 12 months.
a. What rate would legally have to be quoted? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a: Annual Percentage Rate = ____ %
b: Effective Annual Rate = ____ %
Essentials of Corporate Finance
ISBN: 978-0078034756
8th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan