What is the effective interest rate

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Reference no: EM13180744

John Davis, a recent IE graduate from Tennessee Technological University, bought an SUV for $30,000 with a down payment of $10,000. John had a little business on the side and did not have a girlfriend when he was at school and hence he was able to save the $10,000 for his dream car. He expects to take good care of the car and the dealership, owned by John's uncle, agrees to take the car back for $8,000 at the end of 4 years.

a. If the monthly payment is $400, what is the nominal interest rate on this loan?

b. What is the effective interest rate?

Reference no: EM13180744

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