Question

You are going to buy a new car worth $25,800. The dealer computes your monthly payment to be $509.55 for 60 months of financing. What is the dealer's effective rate of return on this loan transaction? The dealer's effective rate of return is 1 1%. (Round to one decimal place.)

Answer 1

6.9%

Explanation:

Interest rate is the one variable in an amortization formula that cannot be determined explicitly. An iterative solution is required, which means the computation must be done by a calculator, spreadsheet, or web site.

My TI-84 TVM Solver tells me that for the given loan amount and payment schedule, the APR is about 6.9%.