A local finance company quotes a 16 percent interest rate on one-year loans. So, if you borrow $26,000, the interest for the year will be $4,160. Because you must repay a total of $30,160 in one year, the finance company requires you to pay $30,160y12, or $2,513.33, per month over the next 12 months. Is this a 15 percent loan? What rate would legally have to be quoted? What is the effective annual rate?
A local finance company quotes a 16 percent interest rate on one-year loans. So, if you borrow $26,000, the interest for the year will be $4,160. Because you must repay a total of $30,160 in one year, the finance company requires you to pay $30,160y12, or $2,513.33, per month over the next 12 months. Is this a 15 percent loan? What rate would legally have to be quoted? What is the effective annual rate?
Foundations of Business (MindTap Course List)
6th Edition
ISBN:9781337386920
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Chapter15: Using Management And Accounting Information
Section: Chapter Questions
Problem 5DQ
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A local finance company quotes a 16 percent interest rate on
one-year loans. So, if you borrow $26,000, the interest for the year will be $4,160. Because you must repay a total of $30,160 in one year, the finance company requires
you to pay $30,160y12, or $2,513.33, per month over the next 12 months. Is this a
15 percent loan? What rate would legally have to be quoted? What is the effective
annual rate?
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