Question

If you borrow $2,700 at $250 interest for one year, what is your effective interest rate for the following payment plans? (Input your answers as a percent rounded to 2 decimal places.)  
   

Effective Rate of Interest

A. Annual Payments 9.26% (This is correct need B,C,D)

B.Semiannual payments ?

C. Quarterly payments ?

D. Monthly payments ?

Answer 1

B)

Interest amount for one year = $250

Semi annual payment = $250/2 = $125

Borrowed amount = $2700

Semi annual interest rate = $125/$2700 = 0.046296 i.e. 4.6296%

Effective rate of interest = (1.046296)^2 - 1

= 1.0947 - 1 = 0.0947 i.e. 9.47%

C)

Interest amount for one year = $250

Quarterly interest payment = $250/4 = $62.5

Borrowed amount = $2700

Quarterly interest rate = $62.5/$2700 = 0.023148 i.e. 2.3148%

Effective rate of interest = (1.023148)^4 - 1

= 1.095856 - 1 = 0.095856 i.e. 9.59%

D)

Interest amount for one year = $250

Monthly interest payment = $250/12 = $20.8333

Borrowed amount = $2700

Monthly interest rate =

$20.8333/$2700 = 0.007716 i.e. 0.7716%

Effective rate of interest = (1.007716)^12 - 1

= 1.0966 - 1 = 0.0966 i.e. 9.66%