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Maurinko [17]
2 years ago
8

A student bought a $75 used guitar and agreed to pay for it with a single $80 payment at the end of 3 months. What is the nomina

l annual interest rate? What is the effective interest rate?
Business
1 answer:
Wewaii [24]2 years ago
8 0

Answer:

29.5%

Explanation:

Effective interest rate is the actual interest rate that a investor receives on invesment or a borrower pays on loan including the compounding effect.

APR = (80 - 75) / 75 = 0.067 = 6.67%

Effective interest rate = ( 1 + APR )^n - 1

Effective interest rate = ( 1 + 6.67% )^4 - 1

Effective interest rate = ( 1.0667 )^4 - 1

Effective interest rate = 1.2947 - 1

Effective interest rate = 0.2947

Effective interest rate = 29.5%

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