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Homework answers / question archive / If you borrow $6,100 at $510 interest for one year, what is your effective interest rate for the following payment plans? (Input your answers as a percent rounded to 2 decimal places

If you borrow $6,100 at $510 interest for one year, what is your effective interest rate for the following payment plans? (Input your answers as a percent rounded to 2 decimal places

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If you borrow $6,100 at $510 interest for one year, what is your effective interest rate for the following payment plans? (Input your answers as a percent rounded to 2 decimal places.) 
Effective Rate of Interest a. Annual payment % b. Semiannual payments ? % c. Quarterly payments ? % d. Monthly payments ? % 
 

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Computation of Effective Interest Rate:

a) Annual Payment:

Effective Interest Rate = Interest / Borrowed Amount

= $510/$6,100

= 8.36%

 

b) Semiannual Payment:

Effective Interest Rate = (2*Number of Payments*Interest)/((Number of Payments+1)*Borrowed Amount)

= (2*2*$510)/((2+1)*$6,100)

= $2,040/$18,300

= 11.15%

 

c) Quarterly Payments:

Effective Interest Rate = (2*Number of Payments*Interest)/((Number of Payments+1)*Borrowed Amount)

= (2*4*$510)/((4+1)*$6,100)

= $4,080/$30,500

= 13.38%

 

d) Monthly Payments:

Effective Interest Rate = (2*Number of Payments*Interest)/((Number of Payments+1)*Borrowed Amount)

= (2*12*$510)/((12+1)*$6,100)

= $12,240/$79,300

= 15.44%

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