Question

A broadband service company borrowed $2 million for new equipment and repaid the loan in amounts of $219,000 in years 1 and 2 plus a lump sum amount of $2.3 million at the end of year 3. What was the interest rate on the loan

Answer 1

%12.15

Step-by-step explanation:

Answer 2

12.15%

Step-by-step explanation:

The interest rate on the loan is the rate that solves the equation

`P=(A_(1) )/(1+r) +(A_(2))/((1+r)^(2) ) +(A_(3))/((1+r)^(3) )`

Where P = loan amount

A = the annual repayment for each year

r = the interest rate

`2,000,000=(219,000 )/(1+r) +(219,000)/((1+r)^(2) ) +(2,300,000)/((1+r)^(3) )`

Using interpolation or a financial calculator, the rate that solves the equation is 12.148504% = 12.15%.