Question

Use the constant ratio formula to find the approximate annual percentage rate to the nearest tenth of a percent for a $2000 loan repaid in 12 payments with an interest charge of $180

Answer 1

16.6%

Explanation:

The constant ratio formula tells you the amount of total interest is ...

I = Br(n+1)/(2m)

where B is the loan amount, r is the approximate APR, n is the number of payments, m is the number of payments per year.

Filling in the given values and solving for r, we get ...

180 = 2000r(12 +1)/(2·12)

180 = 26000r/24

r = 180·24/26000 ≈ 0.16615 ≈ 16.6%

The approximate annual percentage rate is 16.6%.