You have to repay your car loan of $20,000 in 48 month (A) with 1.25% per month.

Question

You have to repay your car loan of $20,000 in 48 month (A) with 1.25% per month. Therefore, your effective rate of interest per year is equal to 16.075% which is the APY. A. True B. False 2.You have to repay your car loan of $20,000 in 48 month (A) with i=1.25% per month. Therefore, your effective rate of interest per month is equal to 1.3995%. A. True B. False 3. You have to repay your car loan of $20,000 in 48 month (A) with i-1.25% per month. Therefore, your monthly payment is equal to $556. A, True B. False 4. Feasible solutions are all possible and impossible solutions created in the synthesis step. A. True B. False 5. The net cash flow is the arithmetic sum of each receipts (+) and the disbursement (-) that each individual transaction may occur at any different point in time. A. True B. False 6. Feed-back process is the last step of decision-making process. A. True B. False 7. In the decision-making process, you identify feasible alternatives in the synthesis step. A. True B. False

Explanation / Answer

1.

Effective interest rate is the interest rate that you actually pay while paying off the loan.

In this case we will calculate the effective annual interest rate as follows-

The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period. It is also called the effective interest rate, the effective rate or the annual equivalent rate

So if nominal interest rate (i), number of compounding in a year is (m), effective interest will be

Effective interest rate = (1 + i/m) ^m -1

Where,

Nominal interest rate (i) = 15% per year

Number of compounding in a year (m) = 12

Let's put all the values in the formula

Effective interest rate = (1 + 0.15/12) ^12 - 1

                                              = (1 + 0.0125) ^12 - 1

                                              = (1.0125) ^12 - 1

                                              = 1.16075 - 1

                                              = 0.16075

So annual effective interest rate is 16.08% per year

So the statement is true.

2.

Effective interest rate = .1608/12 = 0.0134 or 1.34%

So the statement is false.

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