A bank customer is granted credit for a $2,000 loan at 10 percent to be repaid in 12 equal installments.If the loan quoted has an add-on rate,which of the following is the approximate annual percentage rate (APR)on the loan?

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Since the loan is to be repaid in 12 equal installments, the add-on rate is simply added to the principal amount and the resulting sum is divided by 12. In this case, the total amount to be repaid is $2,200 ($2,000 + 10% of $2,000), divided into 12 equal installments, which gives us $183.33 per installment. To calculate the APR, we need to find the interest rate that would give us a total repayment of $2,200 over the course of a year. One way to do this is to multiply the monthly installment by 12 to get the total annual repayment, which is $2,200. Then divide this by the original principal amount of $2,000 to get the APR, which is 1.10 or 110%, and then subtract 100% to get the APR in percentage points. So the APR is approximately 10%. However, this APR is not the true cost of the loan since it does not take into account the fact that the principal amount is reduced with each payment. To get a more accurate APR, we would need to use a different calculation that takes into account the reducing balance of the loan. This would likely result in a higher APR than 10%.

A Bank Customer Is Granted Credit for a $2,000 Loan