Question

You are borrowing $4,000 to purchase a HD plasma TV using a 36 month installment plan. Determine the annual percentage rate (APR) using the APR formula given that the interest charge is $782.96. Round your answer to the nearest whole percent. a. 0.1196% c. 12% b. 11.50% d. 13%

Answer 1

Annual Percentage rate (APR) is calculated by the formula:

APR = 72i / {3P(n+1) + i(n-1)}

where:

i = Interest Rate
P = principal amount borrowed
n = number of months of the loan

Given: 

Interest rate = $782.96
Principal amount = $4,000
number of months = 36 months

Substitute the given to the formula:

APR = 72(782.96) / [{3(4000)(36+1)} +  {782.96(36-1)}]
APR = 56,373.12 / {444,000 + 27,403.60}
APR = 56,373.12 / 471,403.60
APR = .1196 X 100    ⇒ Multiply by 100 to get the percentage
APR = 11.96% or 12%  (c)