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What is the effective annual rate on the loan

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Reference no: EM132683869

Banks sometimes quote interest rates in the form of "add-on interest." In this case, if a 1-year loan is quoted with a 6% interest rate and you borrow $12,000, then you pay back $12,720 (=$12,000×1.06). However, you make these payments in monthly installments of $1,060 (= $12,720/12) each.

a. What is the true APR on this loan?

b. What is the effective annual rate on the loan?

Reference no: EM132683869

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