BUSINESS, FUR1 2002 VCAA 5 MC

A loan of `$18\ 000` is to be repaid by making `48` payments of `$480` per month.
For this loan, the effective rate of interest is closest to

A. 7.0% per annum

B. 13.7% per annum

C. 26.7% per annum

D. 28.0% per annum

E. 54.9% per annum

Show Answers Only

`B`

Show Worked Solution

` text(Flat rate interest)`

`= 5040/(18\ 000) -: (48/12)`

`= 0.07`

`= text(7%)`

`text(Using effective rate of interest)`	`≈ (2n)/(n + 1) xx text(flat rate)`
`text(Effective rate of interest)`	`≈ (2(48))/(48 + 1) xx 7`
	`≈ 13.71…`
	`≈ text(13%)`

`=> B`