The recorded Week 7 Quiz 3 - LumoSum or Installmentsprovides a good overview on calculating this problem. Use the "A Number of Useful Financial Spreadsheets" to find a sample template you can use to work this problem. I showed you how to do this problem as either and Ordinary Annuity or an Annuity Due.

The problem you will answer has the following fact pattern:

Your insurance premium for your autos are due and you have two options:

Option 1 - Pay the full amount of $1,200 now.

Option 2 - Pay $205 now and 5 monthly payments of $205 with the first payment starting in a month.

What is the APR you are actually paying if you choose the installment Option 2?

Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25)

What would the Effective Annual Rate be if you pursued the installment option?

Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25)