You borrow $2,000 from Gougo's, a well-known loan consolidation outfit. The loan is an "unbelievably low"2.5percent per month compounded monthly. You have 2 years to pay back the loan.
a. What is the nominal interest rate?
b. What is the effective interest rate?
c. If you wait until the end of year 2 to pay it off in one lump sum, how much must you pay? Use the "period interest rate" approach.
d. If you wait until the end of year 2 to pay it off in one lump sum, how much must you pay? Use the "effective interest rate" approach.
e. Of your payment in parts (c) or (d), how much is interest?
f. Suppose you make equal end-of-month payments. How much is the monthly amount?