Question

Cassandra is repaying an installment loan of $3,500 with 20 equal monthly payments of
$196 each. What is the annual percentage rate of the loan?

Answer 1

Using the formula of Interest equals principle times interest rate times term or
I + P x R x T.

Since we do not know the interest rate, using algebra, we get this formula to find out the interest rate:

R + I/ P x T.
So in your case it would be this:

R = $420.00 / $3,500.00 x 1.333

The $420.00 was derived from subtracting the total owed from the total payments. The term is 20 months or 1 8/12 years or 1 2/3 or 1.333

Now do the math. $35000 x 1.33 = 4665.5
$420 / 4665.5 = .09 or 9%

Proof:
I = 3500.x .09 x 1.333
I = $419.90 or rounded $420.

Hope this helped