Effective and Flat Rates of Interest Homework Help

Effective and Flat Rates of Interest

As shown above in the loan repayment/amortization schedule, effective rate of interest (also called annual percentage rate, APR) is applied 10 the diminishing balances of the loan amount to determine the interest content of each installment. When the of interest is applied to the original amount of the loan to determine the interest component, the interest rate is called as flat rate. The computation of the flat rate of Interest and the APR/effective rate of interest is illustrated below.

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