Question

Using the interest formula, compute the true annual interest rate. Loan amount = $9,500 Monthly payments = $227.50 Time of loan contract = 5 years True annual interest rate (to the nearest tenth) = _____.

Answer 1

Let's compute the total loan cost:

https://www.1728.com/loanfrm4.htm

227.50 per month * 60 months = $13,650.00 TOTAL LOAN COST

I think the loan payment formula cannot be solved for rate and must be solved through trial and error.

Here is an online loan calculator:

It says the answer is 15.299 which would be

15.3% rounded

1728.com/calcloan.htm

Answer 2

Answer:

The true annual interest rate is 15.3%.

Step-by-step explanation:

Given information: Loan amount = $9,500, Monthly payments = $227.50, Time of loan contract = 5 years.

The formula for monthly payment is

$M.P.=\frac{P.V.(\frac{r}{12})}{1-(1+\frac{r}{12})^{12n}}$

Where, M.P. is monthly payment, P.V. is present value, r is rate of interest, n is number of years.

$227.50=\frac{9500(\frac{r}{12})}{1-(1+\frac{r}{12})^{-12(5)}}$

Using graphing calculator we get

$r=0.153$

$r=15.3\%$

Therefore the true annual interest rate is 15.3%.