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Will thumbs up! thank you for the help! 7. value: 1.25 points Problem 5-49 Effective Interest Rate (LO4) In a discount interest loan, you pay
Will thumbs up! thank you for the help!
7. value: 1.25 points Problem 5-49 Effective Interest Rate (LO4) In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $30,000 and the interest rate is 12.50%, the borrower "pays". 1250 * $30,000 = $3,750 immediately, thereby receiving net funds of $26,250 and repaying $30,000 in a year. a. What is the effective interest rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Effective interest rate % b. What is the effective annual rate on a $1,000, 1-year loan with an interest rate quoted on a discount basis of 22.50%? (HINT: The borrowed amount is $1,000*(1-22.50%) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Effective annual rate %Step by Step Solution
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