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Interest Rates

JB recently agreed to purchase new furniture from a local retail outlet under the following conditions. On the expectation that his income would rise in the near future, he purchased $27000 of furniture on credit. Under the terms of the agreement he would make no payment for the first year though interest would accrue. After the first year he would then begin to pay off the loan by making 24 equal monthly payments of $1519.61 with the same rate of monthly interest being charged his account.
1. What is the monthly rate of interest on JB's loan?
2. What is the nominal annual rate (APR)?
3. What is the effective annual rate (annualized yield) that JB is being charged?

Solution Preview

Let r be the monthly rate. Then the amount at the end of 12 months will be 27,000 X (1+r)^12. This amount is being repaid in 24 months at a monthly ...

Solution Summary

The solution explains the calculation of monthly rate, APR and effective annual rate.