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What are the effective interest rates on these loans

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Question - The Magic Pumpkin Limousine Company wants to purchase a car entertainment system for one of its automobiles. The entertaiment system vendor has offered to finance the $2,000 purchase over one year in 12 installments, with a total of $200 in interest to be paid on the loan. Magic Pumpkin's bank has offered to finace the purchase with an installment loan, where $155 in interest will be repaid and payments on the loan must be paid quarterly. What are the effective interest rates on these loans? Which loan should they select?

Reference no: EM131939409

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