I have been given two different answers for this question with no explanation of
ID: 2677626 • Letter: I
Question
I have been given two different answers for this question with no explanation of how the answer was obtained. This is not very helpful. Please respond with an answer that includes how it was obtained.A firm is planning to borrow $12,000 from the bank. The bank offers the choice of a 12 percent discount interest loan or a 10.9 percent add-on, one-year installment loan, payable in 4 equal quarterly payments. What is the approximate (nominal) interest on the 10.19 percent add-on loan?
Choices are a) 5.10%; b) 10.19%; c) 12%; d) 20.38%; e) 30.57%
Explanation / Answer
Total to be repaid = $12,000(1 + 10.90/100) = $13,222.80
Interest = $13,222.80 - $12,000 = $1,222.80
(or)
Total interest to be paid = $12,000(10.90/100) = $1,222.80
Approximate rateAdd-on = 1,222.80/(12,000/2) = 0.2038 = 20.38%.