Question

If you borrow $500 from a credit union at 12% annual interest and $250 from a bank at 18% annual interest, what is the effective

Answer 1

Answer:

B.  11.85% =  12%

Step-by-step explanation:      

500 * .10 + 300 * .15 = 50 + 45 = 95.

95/800 = .11875

.11875 = 11.875%

Answer 2

Answer:

The correct answer is A. 14%

Step-by-step explanation:

Let's find out the effective annual interest rate for both loans, this way:

1st Loan:

Amount of the loan = $ 500 Interest rate = 12% = 0.12

Total interests for the year = 500 * 0.12 = $ 60

2nd Loan:

Amount of the loan = $ 250 Interest rate = 18% = 0.18

Total interests for the year = 250 * 0.18 = $ 45

Total Interests for both loans = 60 + 45 = $ 105

Effective annual interest rate = Total interest for both loans/Amount of the loans

Effective annual interest rate = 105/750 = 0.14 = 14%