Question

1. Jed wants to borrow $1000 from you. He is proposing to repay you with three annual payments of $289.39 starting one year from now. In addition, he will make a final lump-sum payment of $160 three years from today. What rate of return are you earning on the loan? ___% (Round to two decimal places)

Answer 1

The rate of return on the loan is 2.817%.

Step-by-step explanation:

To calculate the rate of return on the loan, we need to find the interest earned over the three annual payments and the final lump-sum payment. The total amount borrowed is $1000. The sum of the three annual payments is $289.39 x 3 = $868.17. The remaining amount to be repaid in the final lump-sum payment is $160. Therefore, the total interest earned on the loan is $868.17 + $160 - $1000 = $28.17.

Now, to find the rate of return, we need to divide the interest earned by the amount lent and multiply by 100. Hence, the rate of return is ($28.17 / $1000) x 100 = 2.817% (rounded to two decimal places).