Answer:
monthly rate = 7.47%
APR:89.64%
effective rate 137%
Explanation:
We will calculate the monthly rate:
C 743
time 84 months
rate r
PV $9,925.0000
We solve this using excel or a financial calculator for a precise solution
0.074734946
<u>another way we do so:</u> 9975/743.49 = 13.34920
And we look into an annuity table for which rate generates a factor of 13.416 when time = 84
as this time is not in the table, we are better off doing excel solution
<u>another way will be trial and error</u>, we enter different rates until we are satisfied with the margin of error
we will try 5% 6% 7% 8 % and so on until we get closer. In this case
using 7.5% we got: 13.3027
using 7.4% we got: 13.4799
So the answer (13.34920) is between these two,
we now add a centecimal:
if r = 7.45 then factor = 13.3907
if r = 7.46 then factor = 13.3730
if r = 7.47 then factor = 13.3554
if r = 7.48 thenb factor = 13.3378
so we could say the rate will be 7.47% using trial and error.
APR:
as the year has 12 months, then 7.47x12 will be the APR
7.47 x 12 = 89.64%
<u>Effective rate:</u>
In this case we have t oconvert the montly compounding rate to an annual rate compounding annual:
effective rate = 1.373815638 = 137%