The Premier Car Title Loan Company makes emergency loans of up to $500 for 1 month for a fee of 4% of the loan amount. If a person borrows $500, what is (a) the nominal interest rate per year, and (b) the effective rate per year?

What will be an ideal response?


(a) Interest rate per month = 4%

r = (0.04)(12)
= 48% per year

(b) ia = (1 + 0.48/12)¹² – 1
= 60.1% per year

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