vcaa answer sheet wrong?

[Tonychet2]

A loan of $18 000 is to be repaid by making 48 payments of $480 per month.
For this loan, the effective rate of interest is closest to

A. 7.0% per annum
B. 13.7% per annum
C. 26.7% per annum
D. 28.0% per annum
E. 54.9% per annum

I keep getting A but Vcaa says the answer is B, how?

[lukaal340]

you might be calculating flat rate? the answer says effective rate.

[Tonychet2]

oh shit i didnt know that effective rate meant compounding interest! YESSS gap filled first business maths question wrong in all papers from 2011  to 2002 thanks ! !

[Tonychet2]

oh shit i didnt know that effective rate meant compounding interest! YESSS gap filled first business maths question wrong in all papers from 2011  to 2002 thanks ! !

WAIT, using finance solver i get 12.7%? can u guide me how through the steps to solving this?

[lukaal340]

use the simple interest formula to find the flat rate. then go  Flat rate*(2*n/n+1) where n is number of payments made in total.

[dfgjgddjidfg]

7% is the flat rate. To convert this to the effective rate: you use the formula (2xnxflat rate)/(n+1) where n= the number of payments. So 7x2x48/49

[lukaal340]

effective rate is another way of giving flat rate to give a more detailed idea on what you are actually paying. It shows the interest rate your paying compared to the average amount owed during the loan. you can also use the formula (100*I/P*t)*(2n/n+1) where P is principle t is time and n is number of payments made.

[Tonychet2]

oh shit i dont remember learning that at all ty so much .. !