Question

A business that owns a chain of restaurants needs to borrow $20,000 to remodel one of...

A business that owns a chain of restaurants needs to borrow $20,000 to remodel one of it's establishments. A loan of $20,000 was offered for a term of 24 months. The business must make payments of $1118 per month.

Please format percentage rate as decimals. Format to five decimal places. 0.00000 VERY IMPORTANT TO FORMAT CORRECTLY, DO NOT ROUND

a. Determine the loan's monthly interest rate. _____________

b. Determine the loan's annual effective interest rate. ______________

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Answer #1

SOLUTION:-

(a) Per month interest = 1118 i.e loan of $20,000. pay

Interest + Principal as 1118

Where n = interest rate

  

5.59% = Per month interest rate

(b) Effective interest rate = Monthly Interest rate

= 12 5.59

= 67.08

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