Question

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A discount electronics store advertises the following financing arrangement: “We don't offer you confusing interest rates. We'll just divide your total cost by 10 and you can pay us that amount each month for a year." The first payment is due on the date of sale and the remaining eleven payments at monthly intervals thereafter. Calculate the effective annual interest rate the store's customers are paying on their loans. Select one: O a. 41.3% Ob. 35.1% O c. 54.9% O d. 51.2% O e. 42.0%

Answer 1

ola Let purchase be x . This purchase price is divided into 12 monthly payments of x/10 that begin today. Working in months with the mont inthly effective interest rate, the equation of value e is X X = an :(12) 1o 127 12 ¡(12) 12 12

calculator financial Using a Can calculate monthly monthly effective interest rate as 3.50315% 12 (1-0350315) The annual effective interest rate ܃ ܃ ! =. 51,16 % Approxi mately i = 51.2.1.