Question

If you borrow $7,900 at $520 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.)  
  

annual payment effective rate of interest _______

semi-annual payment effective rate of interest _______

quarterly payment effective rate of interest _______

monthly payment effective rate of interest _______

Answer 1

The interest rate for one year = 520/7,900 = 0.06582278481

1. annual payment effective rate of interest = 0.06582278481

annual payment effective rate of interest = 6.58%

2. semi-annual payment effective rate of interest = (1 + 0.06582278481)^(1/2) - 1

semi-annual payment effective rate of interest = 0.0323869356

semi-annual payment effective rate of interest = 3.24%

3. quarterly payment effective rate of interest = (1 + 0.06582278481)^(1/4) - 1

quarterly payment effective rate of interest = 0.01606443477

quarterly payment effective rate of interest = 1.61%

4. monthly payment effective rate of interest = (1 + 0.06582278481)^(1/12) - 1

monthly payment effective rate of interest = 0.00532639078

monthly payment effective rate of interest = 0.53%