What is the effective annual interest rate earned

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Reference no: EM131980533

You borrow $36,000 from a friend to be repayed over 3 years. You pay back $1,000 of principal at the end of each month and also pay an additional interest of $1,800 at the end of the first year, $1,200 at the end of the second year, and $600 the end of the third year. Your friend immediately re-invests any amount received and earns interest on it at the annual nominal rate of 2.4% compounded monthly.

(a) What is the effective annual interest rate that you pay on the loan?

(b) What is the effective annual interest rate earned by your friend?

Reference no: EM131980533

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