Question

A local finance company quotes an interest rate of 19.9 percent on one-year loans. So, if you borrow $48,000, the interest for the year will be $9,552. Because you must repay a total of $57,552 in one year, the finance company requires you to pay $57,552/12, or $4,796.00 per month over the next 12 months. a. What rate would legally have to be quoted? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal p

Answer 1

Answer and Explanation:

The computation is shown below:

a. For annual percentage rate

The excel spreadsheet is attached that contains two attachment one of formula and the other one is of final values

Therefore applying the given formula, the rate at which it is legally quoted is 34.91%

b. For the effective annual rate:

The excel spreadsheet is attached that contains two attachment one of formula and the other one is of final values

Therefore applying the given formula, the rate at which it is legally quoted is 41.07%