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You have just borrowed $20,000 to buy a new car. The loan agreement calls for 36 monthly payments of $700 each to begin one month from today. If the interest is compounded monthly, what is the effective annual rate on this loan?

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agboanthony124

Answer:

The effective rate on the loan is 13/18% or 0.722%

Explanation:

36 monthly payments of $700 will give = 700*36=$25200

Amount= $25200

Principal= $20000

Interest= amount - principal

Interest= 25200 -20000

=$5200

Rate= (100* interest)/principal*time

= (100*5200)/(20,000*36)

=13/18 %

= 0.722%

The effective annual rate on the loan is 0.722%

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