Question

Payments of $27.50 are made monthly for a period of 36 months, and the amount financed is $835. What is the APR using the formula above?

Answer 1

12

Explanation:

y = payments per year = 12

c = total interest paid = (36 * 27.50) - 835

m = amount financed = 835

n = total number of payments = 36

It is just a matter of finding the definitions and implementing them.

I get 12.0281484 for the exact result.

so 12 would most likely be the best answer for this.

Answer 2

The monthly payment for loans with no fees is expressed by a formula. The monthly payment equation is expressed as:

P = (P° x r x (1+r)^N) / ((1+r)^N -1)

where P is the monthly payment, P° is the loan amount, r is the APR, N is the number of monthly payments

We substitute the values and manipulate where one side contains the unknown term r.

27.50/835 = ( r x (1+r)^36) / ((1+r)^36 -1)

Using some functions in the calculator we obtain,

r = 9.51 x 10^-3

Thus, the problem above has an APR of 0.95% monthly.