Question
A company borrowed $1500. It must make monthly payments of $40.50 for 42 months to pay off the loan. Use the constant ratio formula to find the annual percentage rate.
Answers
Anonymous
The Constant Ratio Formula for APR
APR ¡Ö 2NI
P(T +1)
where
N = number of payments per year (usually 12 since most loans are paid back in monthly payments)
I = finance charge (i.e., total interest plus any additional charges)
P = principal
T = total number of payments
42 pmts x $40.50 = total pd back $1701.
Loan is for $1500, the interest is $1701 - $1500 = $201
APR = 2(12)(201)
1500 (42+1)
= 4824 = 0.07479
64500
= 7.48 %
APR ¡Ö 2NI
P(T +1)
where
N = number of payments per year (usually 12 since most loans are paid back in monthly payments)
I = finance charge (i.e., total interest plus any additional charges)
P = principal
T = total number of payments
42 pmts x $40.50 = total pd back $1701.
Loan is for $1500, the interest is $1701 - $1500 = $201
APR = 2(12)(201)
1500 (42+1)
= 4824 = 0.07479
64500
= 7.48 %