1 effective interest rate banks sometimes quote interest, Ask an Expert

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1) (effective interest rate) banks sometimes quote interest rates in the form of "add-on interest" in this case, if a 1-year loan is quoted with a 20% interest rate and your borrow $1000, then you pay back $1200. But you make these payments in monthly installments of $100 each.

a) what is the true APR on this loan?

b) what is the effective annual rate on the loan ?

2) You borrow $1000 from the bank and agree to repay the loan over the next year in 12 equal monthly payment of 90$. However, the bank also charges you a loan initiation fee of $20, which is taken out of the initial proceeds of the loan. what is the effective annual interest rate on the loan, taking account of the impact of the initiation fee?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91420340

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