You borrow B dollars from your bank, which adds on the total interest before computing the...
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You borrow B dollars from your bank, which adds on the total interest before computing the monthly payment (add-on interest). Thus, if the quoted nominal interest rate (annual percentage rate) is r% and the loan is for N months, the total amount that you agree to repay is B+ B(N/12)(r/100) This is divided by N to give the amount of each payment, A A - B(1/N + r/1200) This is called an add-on loan. But the true rate of interest that you are paying is somewhat more than r%, because you do not hold the amount of the loan for the full N months. a. Find the equation to determine the true rate of interest i per month. b. Plot the relationship between r and i as a function of N. c. For B= $10,000, N = 36 months, andr= 8%, find the effective annual borrowing rate per year. d. Identify the lending situation in which the true interest rate i per month ap- proaches to r/12. You borrow B dollars from your bank, which adds on the total interest before computing the monthly payment (add-on interest). Thus, if the quoted nominal interest rate (annual percentage rate) is r% and the loan is for N months, the total amount that you agree to repay is B+ B(N/12)(r/100) This is divided by N to give the amount of each payment, A A - B(1/N + r/1200) This is called an add-on loan. But the true rate of interest that you are paying is somewhat more than r%, because you do not hold the amount of the loan for the full N months. a. Find the equation to determine the true rate of interest i per month. b. Plot the relationship between r and i as a function of N. c. For B= $10,000, N = 36 months, andr= 8%, find the effective annual borrowing rate per year. d. Identify the lending situation in which the true interest rate i per month ap- proaches to r/12.
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Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
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