Question

Suppose you borrow $10,000 from your parents to buy a car. You agree to pay $222.44 per month for 60 months. What is the annual interest rate? (hint: after calculating monthly rate, multiply the monthly rate by 12.)

Answer 1

12%

Step-by-step explanation:

We use the RATE formula for determine the annual interest rate which is shown below:

Present value = $10,000

Future value = $0

PMT = $222.44

NPER = 60 months

The formula is shown below:

= Rate(NPER;PMT;-PV;FV;type)

The present value come in negative

So, after solving this, monthly rate is 1%

Now the annual interest rate is

= 1% × 12 months

= 12%