Question

Sarasota Company purchased a machine at a price of $103,200 by signing a note payable, which requires a single payment of $130,002 in 3 years. Click here to view factor tables Assuming annual compounding of interest, what rate of interest is being paid on the loan

Answer 1

-7.407%

Step-by-step explanation:

Let interest rate be x%

Present value of payment = $130,002 * PV of discounting factor (rate%, time period)

$103,200 = $130,002 * 1.0x^3

1.0x^3 = $103,200 / $130,002

1.0x = ($103,200 / $130,002)^(1/3)

1.0x = 0.793834^(1/3)

1.0x = 0.92592660981

x = (0.92592660981 - 1) * 100

x = -0.07407*100

x = -7.407%