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    What are the nominal and effective annual interest rates for the two alternative payment plans from the orthodontist?

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    Your child's orthodontist offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal and effective annual interest rate is built into the monthly payment plan?

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    Solution Preview

    The interest rate would be such that the present value of the payments would equal $4,000 to be paid now. We use the PV of annuity ...

    Solution Summary

    The solution explains how to calculate the nominal and effective annual interest rate. Calculations are also provided in the attached Excel sheet.