A loan of $12,000 is to be repaid within one year with level monthly payments, due at the beginning of each month. The 12 payments equal $1,000 each. A finance charge of $632 is also due with the first payment. Which of the following is closest to the effective annual interest rate on the loan? a. 12.7%
b. 12.9%
c.13.1%
d. 13.3%
e. 13.5%

Solution :

It is given : loan amount = $12,000

Time to repay = 12 months

Finance charge = $ 632

AT the interest rate, outflow = inflow

The present value of the loan amounts = loan amount

Now using the annuity table we get

PVAF(1%, 11)=10.9676

This is equal to 10.368 (approximately)

∴ % per month of compounded monthly

So the annual interest rate is :

%

  = 12.70 %

Hence the correct option is (a).

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.