Quoting Rates. Banks sometimes quote interest rates in the form of “add-on interest.” In this case, if a 1-year loan is quoted with a 20 percent interest rate and you borrow $1,000, then you pay back $1,200. But you make these payments in monthly installments of

$100 each. What are the true APR and effective annual rate on this loan? Why should you have known that the true rates must be greater than 20 percent even before doing any calculations?