What is the effective annual rate of interest on this loan

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Question - Charles has just returned from a bad night at the casino. As a result, he needs a quick loan from Shaq. Charles needs $60,000 and Shaq has agreed to lend him the $60,000 if he makes 6 monthly payments to Shaq in the amount of $11,500, to be paid at the end of each month. Because the total amount to be repaid is $69,000, Shaq points out that the interest rate is 15% ($9,000 in interest on a $60,000 principal loan). When Charles complained about the high interest rate given their long friendship, Shaq acknowledged that the effective annual rate (EAR) is the true measure of the annualized interest and that it would be slightly higher because of compounding. Nonetheless, Charles was in a bind and had little choice but to take the loan. Shaq's mention of the effective rate piqued Charles interest in finding out what the effective rate actually is, and he has turned to you for help. What is the effective annual rate of interest (EAR) on this loan?

Reference no: EM132845987

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