Question

Miguel purchased a hot tub costing $5,010 by taking out an installment loan. He made a down payment of $1,300 and financed the balance for 24 months. If the payments are $171.77 each month, use the APR formula to find the APR. Round to the nearest hundredth of a percent.

Answer 1

Solution:

Amount of loan = $5,010 - $1,300 = $3,710

Monthly payment = $171.77

Let monthly interest rate = i

Now

$171.77*Cumulative PV Factor at i for 24 periods = $3,710

Cumulative PV Factor at i for 24 periods = $3,710 / $171.77 = 21.5986

Refer PV factor table and intrapolation, monthly interest rate = 0.86%

Annual Percentage rate = 0.86%*12 = 10.32%