Question 1075894: A loan of $2000 has a monthly payment of $70.65. The loan is for 3 years. Determine interest rate. Non-homework question. Thanks. Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website! present value of the loan is 2000
monthly payment is 70.65
term of the loan is 3 years.
what is the interest rate?
you can solve this throuogh the use of the following financial calculator.
3 years * 12 = 36 months.
your answer will be an interest rate percent per month.
you will need to multiply that by 12 to get the annual interest rate.
your inputs will look like this:
your output will look like this:
if the present value is positive, then the payment must be negative and vice versa.
this is required to make the calculator work properly.
it has to do with cash flow concepts.
if it is a loan, then pv is positive and payment is negative.
this is because you get 2000 up front coming to you and you shell out 70.65 each month to pay off the loan.
if you invest the money up front, then pv is negative and payments are positive because you shell out the money first and get periodic payments from that investment later.
negative means money out.
positive means money in.
your solution is that the monthly interest rate percent is 1.361646.
multiply that by 12 and the annual interest rate percent is 16.339752.
i used excel to give you a month by month breakdown of how the loan is payed off using the monthly interest rate of 1.361646 percent.
