What is the nominal annual interest rate on this loan

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A Technology Management graduate student bought a motorcycle for $30,000, paying a down payment of $10,000. The dealership agrees to take the bike back for $8,000 at the end of 4 years. The student’s uncle owns the dealership.

a) If the monthly payment is $400, what is the nominal annual interest rate on this loan? Use the same interest rate for the loan and the salvage value. Use interpolation to determine the interest rate to 2 decimal places (3 significant figures).

b) What is the effective interest rate?

Reference no: EM13836307

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