Peter buys a ski vacation package priced at $2754. He pays $350 down and finances the balance at $147 per month for 1.5 years. Determine the annual interest rate, compounded monthly, being charged.
The only financial question in my text book that i could not solve. Any help would be appreciated. Thanks!
350 was paid straight away so no interest acted upon it.so he needed to pay 2404.
147 for 1.5yrs=18months is 147(18)=2646
solving for r gives you the annual interest rate compounded monthly
(1+r/12)= 18 x sq rt of 1.1
r/12= 1.005 -1
r= 0.005 x 12
(am i going the right direction?)
so the interest rate compounded monthly is approximately 6%??
Tvm for the quick reply. =)
I don't follow/understand what BOTH of you are doing (Doh)
Formula for loan payments:
P = Ai / (1 - k) where k = 1 / (1+i)^n
P = payment (147)
A = amount borrowed (2404)
n = number of months (18)
i = monthly rate (?)
That CANNOT be solved directly: iteration is required.
The rate will be ~12.357% annual, cpd monthly.
All I can say is look up "iteration" or get teacher to demonstrate;
can't teach that here!
lol Wilmer, i also had no idea what i was doing, was only following Krahl's equation and solving for 'r' o.o
and yea, Wilmer your answer is correct according to the back of the text book. I just wanted to know if there was another way of solving the question without using 'guess and check'. And I was also told that this question was not even meant for grade 11. >.<
oh yes thanks wilmer. paying monthly you have to remember that 147 is worth more now than it does later.
and you get wilmer's formula
my bad :(