Danby Design Inc.has approached the bank with its plan to borrow $12,000.The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments.What is the approximate (nominal) rate of interest on the 10.19 percent add-on loan?

Question

Quizplus · Accepted Answer

The nominal rate of interest on the 10.19 percent add-on loan is calculated by doubling the annual interest percentage, which gives us 20.38%. This is because the add-on interest rate effectively doubles when considering the method of calculating interest on the initial full amount throughout the loan period, despite repayments being made.