A local department store offers 24-month financing for a, Ask an Expert

Economics

A local department store offers 24-month financing for a certain $1,000 appliance at an “interest rate of 9% per year”. The 24 equal end-of-month payments are computed as follows:

Principal: $1,000 Interest at 9% per year = (0.09)(1000)(2) = $180 Credit investigation fee = $18.08 Total to be repaid = $1,198.08 Monthly payments = $1,198.08 / 24 = $49.92

a. What is the effective annual interest rate a customer would actually pay for this financing?

b. What is the nominal annual interest rate compounded monthly for this financing?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91372604

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