A local finance company quotes an interest rate of 16.7 percent on one-year loans. So, if you

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A local finance company quotes an interest rate of 16.7 percent on one-year loans. So, if you borrow $25,000, the interest for the year will be $4,175. Because you must repay a total of $29,175 in one year, the finance company requires you to pay $29,175/12, or $2,431.25 per month over the next 12 months. Is the interest rate on this loan 16.7 percent? What rate would legally have to be quoted? What is the effective annual rate?

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Essentials of Corporate Finance

ISBN: 978-1260013955

10th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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