Your client wishes to insure their Lamborghini.  Mooncorp Insurance has quoted an annual upfront premium to insure the car of $60,000. They also offer an alternative payment method.  The account can be paid in full by making 12 equal end-of-the month payments of $5,200, rather than the lump sum, with the first payment due in one month.  

What is the effective annual opportunity cost of paying monthly?

In other words, what effective annual interest rate is being charged if your client decides to use the repayment plan as opposed to the lump sum?

Answer rating: 100% (QA)

To calculate the effective annual opportunity cost of paying monthly we need to determine the total ... View the full answer