What effective annual rate are you charging her

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Reference no: EM132861922

Problem - The Farmer's and Merchant's State Bank (F&M) of Bushnell is designing a new type of installment loan that charges interest monthly. The bank wishes to charge, effectively 7.75 percent per year on this account. F&M wants to advertise the annual percentage rate (A.P.R.) on this account, rather than the effective annual rate (E.A.R.) of 7.75%, because its competitors state their interest on an annualized basis. What A.P.R. (also called a nominal or stated rate) would F&M have to quote in this case? Why would a bank or finance company prefer quoting the A.P.R. rather than the E.A.R. on their loans? Solve with steps and formula.

Your new job as a financial analyst pays so well that you decide to loan your little sister $1,950 so she can buy a car. You require her to pay you back over 36 months, making payments of $88.40 at the end of each month. What effective annual rate (EAR) are you charging her? Solve with steps and formula.

Reference no: EM132861922

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