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When you purchased a car, you borrowed $20,000 from the bank and agreed to make monthly payments of $423.17 for 5 years. What rate of interest is the bank charging you

User Ji Sungbin
by
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1 Answer

2 votes

Answer:

4.88%

Step-by-step explanation:

The formula to calculate the rate of interest is:

r=(FV/PV)^1/n-1, where

r=rate of interest

FV= future value= 423.17*(12*5)=423.17*60=$25,390.2

PV= present value= $20,000

n= number of periods of time= 5

Now, you can replace the values in the formula:

r=(25,390.2/20,000)^1/5-1

r=1.048-1

r=0.0488→4.88%

According to this, the answer is that the bank is charging an annual rate of interest of 4.88%.

User Wokena
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