Question

Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate. Fees You take out a 3-year, 7,000 loan at 8\% simple annual interest. The lender charges you a $\$ 100$ fee. Thinking of the fee as additional interest, what is the actual annual interest rate you will pay?

Name: Problem 28, Chapter 5: Finite Mathematics and Applied Calculus
Uploaded: 2021-11-30T16:03:23-08:00
Duration: 1 min 33 s
Channel: Carson Merrill
Description: Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest 0.001 %, as appropriate. Fees You take out a 3-year, 7,000 loan at 8% simple annual interest. The lender charges you a 100 fee. Thinking of the fee as additional interest, what is the actual annual interest rate you will pay?

   Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate.
Fees You take out a 3-year, 7,000 loan at 8\% simple annual interest. The lender charges you a $\$ 100$ fee. Thinking of the fee as additional interest, what is the actual annual interest rate you will pay?

Finite Mathematics and Applied Calculus

Stefan Waner, Steven… 5th Edition

Chapter 5, Problem 28

Instant Answer

Solved by Expert Carson Merrill

11/30/2021

Step 1

This is done by adding the total interest paid to the principal. The total interest paid is calculated using the simple interest formula, which is $PRT$, where $P$ is the principal, $R$ is the rate, and $T$ is the time. In this case, $P = \$7000$, $R = 8\% = Show more…

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Compute the specified quantity. Round all answers to the nearest month, the nearest cent, or the nearest $0.001 \%$, as appropriate. Fees You take out a 3-year, 7,000 loan at 8\% simple annual interest. The lender charges you a $\$ 100$ fee. Thinking of the fee as additional interest, what is the actual annual interest rate you will pay?

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Key Concepts

Simple Interest

Simple interest is a method of calculating the interest on a loan where the interest charge is computed solely on the principal amount over the duration of the loan. It doesn't compound on previous interest, making the calculation straightforward and linear over time.

Loan Fees

Loan fees are additional costs associated with borrowing money, outside of the strict interest computation. They can be thought of as extra charges that effectively increase the cost of borrowing, and when interpreted as additional interest, they raise the effective interest rate over the life of the loan.

Effective Annual Interest Rate

The effective annual interest rate reflects the true cost of borrowing on an annual basis after accounting for all additional charges, fees, or compounding effects. It provides a more accurate representation of the total cost of a loan compared to a nominal rate that excludes these extra expenses.

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