Question

Using the interest formula, compute the true annual interest rate. Loan amount = $9,500 Monthly payments = $227.50 Time of loan contract = 5 years True annual interest rate (to the nearest tenth) = _____.

Answer 1

The true annual interest rate is 15.3%.

Explanation:

Given information: Loan amount = $9,500, Monthly payments = $227.50, Time of loan contract = 5 years.

The formula for monthly payment is

`M.P.=(P.V.((r)/(12)))/(1-(1+(r)/(12))^(12n))`

Where, M.P. is monthly payment, P.V. is present value, r is rate of interest, n is number of years.

`227.50=(9500((r)/(12)))/(1-(1+(r)/(12))^(-12(5)))`

Using graphing calculator we get

`r=0.153`

`r=15.3\%`

Therefore the true annual interest rate is 15.3%.