Suppose a bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest payments of $340.00 at the end of each quarter and then pay off the principal amount at the end of the year. what is the effective annual rate on the loan?

13,6%

Explanation:

The first step to calculate the annual interest rate is to calculate the total yearly interest amount you will pay.

So, you'll pay $340 each quarter and, of course, there are 4 quarters in a year,... so a total of $1,360 (4 x $340) for the year.

Then you need to calculate the ratio of that interest amount compared to the loan amount in order to get the yearly interest

The effective annual rate on the load is then of 13,6%.

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