Effective rate under different terms
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If I borrow $12,000 at $900 interest for 1 year, what is my effective rate interest for the following payment plans?
a. annual payment
b. semi-annual payment
c. quarterly payment
d. monthly payment
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The solution explains how to calculate the effective rate under different terms.
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a. annual payment
Effective rate = annual payment/borrowing = 900/12,000 = 7.5%
b. semi-annual payment
The semi annual rate = 450/12,000 = 3.75% as semi annual payment = 900/2 = 450
Effective annual rate = (1+periodic ...
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