Question: Sally lends 5,000 to Tim. Tim agrees to pay back the loan over 10 years with monthly pay- ments payable at the end of

Sally lends 5,000 to Tim. Tim agrees to pay back the loan

Sally lends 5,000 to Tim. Tim agrees to pay back the loan over 10 years with monthly pay- ments payable at the end of each month. Sally can reinvest the monthly payments from Tim in a savings account paying interest at 12%, compounded monthly. The yield rate earned on Sally's investment over the five-year period turned out to be 6%, compounded annually. What nominal rate of interest, compounded monthly, did Sally charge Tim on the loan? (A) 1.8% (B) 2.0% (C) 2.2% (D) 2.4% (E) 2.6%

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