7.29 You wish to buy a fancy mountain bike. You can either pay $800 cash now...
7.29 You wish to buy a fancy mountain bike. You can either pay $800 cash now or make end-of-month payments of $100, 95, 90, 85, . . ., 45 over the next 12 months. What is the effective annual rate for the second payment plan?
Homework Answers
Effective Annual Rate = Total Interest Amount / Principle amount X 100
1.Principle Amount = $800
2. Total Interest = [Total amount payable as per plan -II(100+95+90+85+80+75+70+65+60+55+50+45)] - [Principle amt]
= $870- $800 = $ 70
Effective Annual Rate = $ 70/ $ 800 X 100
= 8.75 %
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