A local finance company quotes a 17 percent interest rate on one-year loans. So, if you...

A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $30,000, the interest for the year will be $5,100. Because you must repay a total of $35,100 in one year, the finance company requires you to pay $35,100/12, or $2,925.00, per month over the next 12 months.

a. What rate would legally have to be quoted?

b. What is the effective annual rate?

Solutions

Expert Solution

Therefore,

a) Rate to be legally quoted is APR = 30.0262%

b) Effective Annual Rate = EAR = 34.5232%

jeff jeffy answered 1 year ago

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