Calculating EAR with Add-On Interest You borrow $20,000 for one year at 13% interest. The interest for the year is 13% of $20k or $2,600 so the total owed at year end is $22,600. The finance company thus requires you to make 12 monthly payments of $22,600/12 = $1,883.33 1. Why isnt this a 13% loan?

2. What are the APR, EAR and the monthly rate? Which one is the stated rate? 1. Why this isnt a 13% loan:

3. If you make payments of $22,600/12 = $1,883.33 per month for 1 year on borrowings of $20,000 what is the rate per month, the APR and the EAR?