23 Jul WHAT IS THE APR ON THIS LOAN?
. Imagi Show more This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judys Stereo City that reads something like this: $1000 Instant Credit! 17.4% Simple Interest! Three Years to Pay! Low Low Monthly Payments! Youre not exactly sure what all this means and somebody has spilled ink over the APR on the loan contract so you ask the manager for clarification. Judy explains that if you borrow $1000 for three years at 17.4 percent interest in three years you will owe: $1000 1.174 3 = $1000 1.61810 = $1618.10 Judy recognizes that coming up with $1618.10 all at once might be a strain so she lets you make low low monthly payments of $1618.10 / 36 = $44.95 per month even though this is extra bookkeeping work for her. What is the APR on this loan? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) Annual percentage rate % What is the EAR? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g. 32.16)) Effective annual rate % Show less
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