Engineering Economy
This is a situation involving two friends. One borrows from the other $500, agreeing to pay back the loan principal plus $75 interest one month later. One year went buy and he did not pay back the loan. Exactly one year later his friend asks him to pay the loan immediately plus the interest with monthly compounding. a) What is the amount that the friend who got the loan has to pay? Hint: Find the effective interest rate per month and then calculate the F after 12 months. b) What is the effective annual interest rate per month he paid on the $500 loan with the initial agreement of paying one month later $75 in interest?