Question

The store where you bought new home furnishings offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?

Answer 1

Answer:

The nominal annual interest rate is built into the monthly payment plan is 14.4%

Explanation:

E = P×r×(1 + r)n/((1 + r)n - 1)

where:

E is the EMI

p is the Principal

r is the nominal rate

n is the number of periods

$137.41 = $4,000*r* (1 + r)36/((1 + r)^36 -1)

           r = 14.4% P.A

Therefore, The nominal annual interest rate is built into the monthly payment plan is 14.4%