Question

You've borrowed $2,244.14 and agreed to pay back the loan with monthly payments of $140. Assume the interest rate is 15% stated as an APR. a. How long will it take you to pay back the loan? (Do not round intermed iate calculations. Round your answer to the nearest whole number.) Number of months b. What is the effective annual rate on the loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Effective annual rate %

Answer 1

1)

Number of periods = 18.00 months

Keys to use in a financial calculator:

2nd I/Y 12

PV 2244.14

PMT -140

I/Y 15

CPT N

2)

Effective annual rate = (1 + APR/n)ⁿ - 1

Effective annual rate = (1 + 0.15/12)¹² - 1

Effective annual rate = (1.0125)¹²- 1

Effective annual rate = 1.1608 - 1

Effective annual rate = 0.1608 or 16.08%