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What is the annual effective interest rate

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Reference no: EM132856016

Problem - Katerina Unger wants to purchase a set of furniture worth $3000. She plans to finance the furniture for two years. The furniture store tells Katerina that the interest rate is only 1% per month, and her monthly payment is computed as follows:

Installment penod = 24 months

Interest -24(0.01)($3000) = $720

Loan processing fee = $25

Total amount owed = $3000 + $720 + $25 = $3745

Monthly payment = $3745/24 = $156.04 per month

Required -

(a) What is the annual effective interest rate that Katerina is paying for her loan transaction? What is the nominal interest (annual percentage rate) for the loan?

(b) Katerina bought the furniture and made 12 monthly payments. Now she wants to pay off the remaining installments in one lump sum (at the end of 12 months). How much does she owe the furniture store?

Reference no: EM132856016

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