A loan of $3,000 for a new, high-end laptop
computer is to be repaid in 15 end-of-month payments
(starting one month from now). The monthly payments
are determined as follows.
Loan principal $3,000
Interest for 15 months at
1.5% per month 675
Loan application fee 150
Total $3,825
Monthly payment = $3,825/15 = $255
What nominal and effective interest rates per year are
actually being paid? Hint: Draw a cash-flow diagram
from the perspective of the lender.