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What is the effective annual interest rate

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Suppose you go to a bank for a one year loan to pay taxes. The bank staff offers you one year loan with 5% annual rate, flat basis and monthly repayment. The exact calculation is illustrated below.

Suppose you borrow $100, you will need to pay back: $100/N+100*r/12 every period, where N is the number of repayment (it will be 12 if it is a one year loan) and r is the quoted interest rate (in the example it is 5%). What is the effective annual interest rate?

A. 7.5% B. 8.5% C. 9.5% D. 10% E. 11.5%

Reference no: EM132535458

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