Problem 6.67 – Unveiling the True Cost of an Add-On Interest Rate Loan

Fundamentals of Corporate Finance

Ross, Westerfield, and Jordan

13th Edition

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Difficulty – Hard

Analyze a loan offer advertised with "instant credit," a simple interest rate, a repayment period, and "low, low monthly payments," illustrating a deceptive way of quoting interest rates called add-on interest. Calculate the annual percentage rate (APR) and effective annual rate (EAR) for this loan, considering the total amount owed after the repayment period and the equal monthly payments.

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