# Annuities - Calculate nominal rate of interest

• Mar 12th 2010, 09:50 PM
thehollow89
Annuities - Calculate nominal rate of interest
So I am not sure where to begin on this question.

A furniture store advertises that you can pay either no tax or no interest. The terms of the no tax option are that no tax will be charged if you pay for your purchase in full on the purchase date. The terms of the no interest option are that you will be charged the 14% tax and pay for your purchase with equal payments at the end of each month for 1 year. Calculate the nominal rate of interest compounded monthly being charged on the "no interest" option.

Any help guys?
• Mar 13th 2010, 02:29 AM
Wilmer
Borrowing means \$1 becomes \$1.14, so 12 payments of .095.
Rate can only be obtained numerically:
works out to ~2.075% monthly, or ~24.9% annually
• Mar 13th 2010, 07:59 AM
thehollow89
Alright thanks. What formula did you use for calculating the interest? My notes aren't up to date for this course. =/
• Mar 13th 2010, 09:14 AM
Wilmer
Quote:

Originally Posted by thehollow89
What formula did you use for calculating the interest?

Read my post again: there is NO applicable formula:
"Rate can only be obtained numerically"

The interest AMOUNT is simply 14% of amount borrowed (purchase).
• Mar 13th 2010, 09:20 AM
thehollow89
Quote:

Originally Posted by Wilmer
Read my post again: there is NO applicable formula:
"Rate can only be obtained numerically"

The interest AMOUNT is simply 14% of amount borrowed (purchase).

How did you calculate the monthly rate numerically then?
• Mar 13th 2010, 11:01 AM
Wilmer
I told you I used "iteration": involves computer programming, to "search".

If you want to learn, google "introduction to iteration".
Can't "teach" that here.
• Mar 13th 2010, 11:50 AM
thehollow89
Quote:

Originally Posted by Wilmer
I told you I used "iteration": involves computer programming, to "search".

If you want to learn, google "introduction to iteration".
Can't "teach" that here.

You never once mentioned iteration until this post actually. I am unsure what my teacher expects us to do then.