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9 January, 12:06

The store where you bought new home furnishings offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?

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  1. 9 January, 15:14
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    The nominal annual interest rate is built into the monthly payment plan is 14.4%

    Explanation:

    E = P*r * (1 + r) n / ((1 + r) n - 1)

    where:

    E is the EMI

    p is the Principal

    r is the nominal rate

    n is the number of periods

    $137.41 = $4,000*r * (1 + r) 36 / ((1 + r) ^36 - 1)

    r = 14.4% P. A

    Therefore, The nominal annual interest rate is built into the monthly payment plan is 14.4%
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