Question

Helen is buying a $12,375 car with a $3000 down payment, followed by 36 monthly payments of $325 each. The down payment is aid immediately, and the monthly payments are due at the end of each month. What nominal annual interest rate is Helen paying? What effective interest rate?

Answer 1

The nominal annual interest rate is 15%.

The effective interest rate is 16.08%.

Explanation:

$9,375 = $325 (P/A, i%, 36)(P/A, i%, 36)

= $9,375/$325= 28.846

From compound interest tables, i = 1.25%

Nominal Interest Rate= 1.25 x 12= 15%

Effective rate = (1+ (0.15/36))^36-1=1.004^36-1= 16.08%