Question

an individual borrows $1,000 from the bank for one year from the bank. the loan requires equal monthly payments. the loan officer states the total interest will be $60. the effective rate on the loan will be:____.

Answer 1

To find the effective rate on the loan, divide the total interest by the loan amount and convert the monthly interest rate to a yearly rate by multiplying it by 12. The effective rate on the loan will be 72%.

Step-by-step explanation:

Since the loan requires equal monthly payments, we can divide the total loan amount by the number of months in a year, which is 12. $1000 / 12 = $83.33. Now, we can calculate the interest rate by dividing the total interest by the loan amount: Interest Rate = Total Interest / Loan Amount = $60 / $1000 = 0.06. Finally, to find the effective rate, we need to convert the interest rate to a yearly rate. We do this by multiplying the monthly interest rate by 12: Effective Rate = Monthly Interest Rate x 12 = 0.06 x 12 = 0.72 or 72%.