What is the effective annual rate on the loan

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Reference no: EM13850564

1) (effective interest rate) banks sometimes quote interest rates in the form of "add-on interest" in this case, if a 1-year loan is quoted with a 20% interest rate and your borrow $1000, then you pay back $1200. But you make these payments in monthly installments of $100 each.

a) what is the true APR on this loan?

b) what is the effective annual rate on the loan ?

2) You borrow $1000 from the bank and agree to repay the loan over the next year in 12 equal monthly payment of 90$. However, the bank also charges you a loan initiation fee of $20, which is taken out of the initial proceeds of the loan. what is the effective annual interest rate on the loan, taking account of the impact of the initiation fee?

Reference no: EM13850564

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