Question

Your dad would like to finance you to complete college. He agrees to lend you $12,000 on your 21st birthday when you join college and agrees to increase the amount lent each year by $2,000 for the next 3 years. If you have to pay him back $18,000 per year on your 28th birthday to your 32nd birthday, what internal rate of return per year compounded yearly did you end up paying for the amount borrowed from your dad?

Answer 1

12,000 + 12,000 + 3,000 + 12,000 + 6,000 + 12,000 + 9,000 = 66,000, the total he lent, but 18,000 for 4 years is 72,000. 72,000 (total paid) - 66,000 (total he lent) equals 6,000 so you paid 6,000 in interest rate.