1. Lawton Pipelines has developed plans for a new pump that will allow more economical operation of the company's oil pipelines. Management estimates that $2,400,000 will be required to put this new pump into operation. Funds can be obtained from a bank at 10 percent discount interest for one year.
a. How much will Lawton have to borrow?
b. What is the effective rate on this loan?
2. You plan to borrow $10,000 from your bank, which offers to lend you the money at an 11 percent nominal, or stated, rate on a 1-year loan. What is the effective interest rate if the loan is an add-on interest loan with 12 monthly payments?