Bart is an engineering graduate who did not take Engineering Economics during his undergraduate studies. After working for a year or so, he faced financial problems and borrowed $500 from a friend in the finance department of his office. Bart agreed to pay off the principal plus $75 in interest a month later. The two parted ways at different jobs and a year passed. The friend wrote an email to Bart exactly one year later and asked for payment of the loan plus interest with monthly compounding, since Bart did not make any payments during the year. a) How much does Bart now owe his friend? b) What is the effective b) What is the effective annual rate Bart pays on the $500 loan?
Bart is an engineering graduate who did not take
a) How much does Bart now owe his friend?
b) What is the effective b) What is the effective annual rate Bart pays on the $500 loan?
Answer: a) $2675.13; b) 435.02%.
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