Answered

Connect with experts and get insightful answers to your questions on IDNLearn.com. Our community is here to provide the comprehensive and accurate answers you need to make informed decisions.

A bank offers to lend you $10,000 for 1 year on a loan contract that calls for you tomake interest payments of $50.00 at the end of each month and then pay off theprincipal amount at the end of the year. What is the effective annual rate on the loan

Sagot :

Answer:

6.17%

Explanation:

The monthly rate of return on the loan is the monthly interest payment on the loan which is $50 divided by the principal amount borrowed.

The monthly rate of interest =$50/$10,000

The monthly rate of interest =0.50%

However, the effective annual rate is the rate of interest on the loan from an annual basis perspective using the formula below:

effective annual rate=(1+monthly interest rate)^n-1

monthly interest rate=0.50%

n=12(the number of monthly compounding in a year is 12)

effective annual rate=(1+0.50%)^12-1=6.17%

We appreciate your contributions to this forum. Don't forget to check back for the latest answers. Keep asking, answering, and sharing useful information. Thank you for visiting IDNLearn.com. We’re here to provide accurate and reliable answers, so visit us again soon.