Question

A newlywed couple bought a washer and dryer for $800. They paid 10% down and then paid 12 monthly payments of $61.97. Determine the APR of the loan to the nearest of a percent.

8.0%

5.5%

7.5%

6.0%

Answer 1

6.0%

Explanation:

There is no formula for finding interest rate from a sequence of payments. A spreadsheet or financial calculator can do the necessary iteration, or the solution can be found by graphical means.

My financial calculator says the APR is 6.00656%. Rounded to the nearest tenth, that is 6.0%.

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The attachment shows the result from an on-line "interest rate calculator". It says the interest rate is about 6.006%. The graphical solution gives a similar result.

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In these various calculations, a principal amount of $720 was used because the down payment on the appliances was 10% of $800, or $80. That left a loan amount of $800 -80 = $720.