Multiple Choice
The time value of money considers which of the following item(s) that change the value of money over time?
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10. Time Value of Money
Time Value of Money Equations
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What is the annual percentage rate (APR) on a loan that charges interest at the rate of 1.4\% per month, assuming interest is not compounded within the year?
A
12.0\%
B
16.8\%
C
18.2\%
D
14.0\%
Verified step by step guidance1
Step 1: Understand the problem. The APR (Annual Percentage Rate) is the yearly interest rate derived from the monthly interest rate, assuming no compounding within the year. In this case, the monthly interest rate is 1.4%.
Step 2: Recall the formula for APR when interest is not compounded within the year: APR = Monthly Interest Rate × Number of Months in a Year.
Step 3: Substitute the given values into the formula. The monthly interest rate is 1.4% (or 0.014 in decimal form), and there are 12 months in a year.
Step 4: Perform the multiplication: APR = 0.014 × 12. This will give the annual percentage rate in decimal form.
Step 5: Convert the decimal result to a percentage by multiplying by 100. This will give the APR as a percentage value.
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