Tian buys a car that costs $35,000.

a) He pays $5,000 down (i.e. immediately), and he pays off the rest of the loan with 26 bi-weekly payments per year of $250 for 5 years. What is the effective annual interest rate i?

b) Instead, he pays no money down but increases his monthly payments to $290, except for the last one which is exactly enough to pay off the loan. The interest rate is the same as in part a). Is the last payment a balloon or a drop payment? How much is it?

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