# Calculating the effective annual interest rate

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If you barrow $4,000 at $500 interest for one year, What is your effective interest rate for the following payment plans?

a. Annual payment.

b. Semiannual payment.

c. Quarterly payment.

d. Monthly payment.

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Solution describes the steps to calculate effective interest rate in the given cases.

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If you barrow $4,000 at $500 interest for one year, What is your effective interest rate for the following payment plans?

a. Annual payment.

Annual number of payments=1

Interest=$500

Total number of payments=1

Principal=$4000

Effective interest rate=(2*Annual number of ...

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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India

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