What would the effective annual rate be

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QUESTION 1 - The problem you will answer has the following fact pattern: - Lumo Sum or Installments provides a good overview on calculating this problem. Use the "A Number of Useful Financial Spreadsheets" to find a sample template you can use to work this problem.  Either Ordinary Annuity or an Annuity Due.

Your insurance premium for your autos are due and you have two options:

Option 1 - Pay the full amount of $1,200 now.

Option 2 - Pay $205 now and 5 monthly payments of $205 with the first payment starting in a month.

What is the APR you are actually paying if you choose the installment Option 2?

Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25)

QUESTION 2 - What would the Effective Annual Rate be if you pursued the installment option? Use monthly compounding and carry your answer two decimal points. (76.25% would be entered 76.25)

Reference no: EM132929577

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