Question

You have just taken out a $2,650 loan from your local bank. You paid off the loan in 1 year by making 12 monthly payments with a total interest charge of $300.00. Determine, from the information given, the annual percentage rate (APR). Round your answer to the nearest hundredth of a percent.

Answer 1

Answer:

20.33%

Step-by-step explanation:

Principal = $2650

Total Interest = $300

Total amount = 42650+$300=$2950

Since we are given that You paid off the loan in 1 year by making 12 monthly payments

So, monthly payment = $\frac{2950}{12} =245.833$

Formula of monthly payment = $\text{Monthly payment }= \frac{Principal \times \frac{i}{12}}{1-(1+\frac{i}{12})^{-12}}$

where i is the rate of interest in decimals

To find i substitute the values

$245.833= \frac{2650 \times \frac{i}{12}}{1-(1+\frac{i}{12})^{-12}}$

using calculator

$i=0.2033$

So, rate of interest in percent = $0.2033 \times 100 = 20.33\%$

Thus the annual percentage rate (APR) is 20.33%

Answer 2

The interest generated in one year = $300
Amount borrowed = $2,650

Interest rate: 300/2650 x 100
Interest rate = 11.32% annually