You see an advertisement for Crazy Eddie$$s Appliance City that says: $$$$1,500$ Instant Credit!

$18\mathrm{.}4\%$ Simple Interest on Loans! Three Years to Pay! Low, Low Monthly Payments!$$ You$$re

not exactly sure what all this means and somebody has spilled ink over the APR on the loan

contract, so you ask the manager for clarification.

Eddie the manager explains that if you borrow $$1,500$ for three years at $18\mathrm{.}4$ percent interest, in

three years you will owe:

$$1,500$ x $1\mathrm{.}1843=$ $$1,500$ x $1\mathrm{.}65980=$ $$2,489\mathrm{.}70$

Now, Eddie understands that coming up with $$2,489\mathrm{.}70$ all at once might be a strain, so he lets

you make $$low$,$ low$$ monthly payments of $$2489\mathrm{.}70/36=$ $$69\mathrm{.}16$ per month, even though this is

extra bookkeeping work for him.

Is the interest rate on this loan $18\mathrm{.}4$ percent per year? Why or why not? What is the APR on this

loan? What is the EAR $($Effective Annual Rate$)?($This way of calculating loan interest is called add$-$on interest.$)$ Hint: the yield to maturity on a bond is the interest rate that a borrower$/$bond issuer is paying to a lender$/$bond buyer given the maturity of the loan$/$bond$,$ periodic coupon payment, the price the borrower$/$bond issuer receives for the bond, and any final payment at maturity. The Excel function RATE calculates yield to maturity given the above information.