Question

kostas gets a four year bank loan to buy a new car that is priced at 20,987. after four years Kostas Will have paid the bank it’s total of $22,960. what interest rate did the bank give him if the interest was compounded monthly. Show your work .

Answer 1

r = 2.04%

Explanation:

r = n{(A/P)^1/nt - 1}

Where,

r = interest rate = ?

n = number of periods = 12

A = future value = $22,960

P = present value = $20,960

t = time = 4 years

r = n{(A/P)^1/nt - 1}

r = 12{(22,960/20,987)^1/12*4 - 1}

= 12{(1.09)^1/48 - 1}

= 12{(1.09)^0.02 - 1}

= 12 (1.0017 - 1)

= 12(0.0017)

= 0.0204

r = 0.0204 × 100

= 2.04%

r = 2.04%