Question

a. Your timeline

b. Problem Type: FVA PMT

c. Solution:

$10,000 x FVA factor (6%/12, 5*12) = FVA answer

$10,000 x 69.77 = $143.33

You are going to borrow $100,000 for a loan for 10 years. If the payments are $1,801.85/month, what is the interest rate on this loan (remember all rates are always quoted as annual equivalents)?

Answer 1

Amount borrowed = $100,000
Monthly payment = $1,801.85
Period = 10 years or 120 months

Let monthly interest rate be i%

$100,000 = $1,801.85 * PVA (i%, 120)
PVA (i%, 120) = 55.49852

Using financial calculator or table value, i = 1.50%

Monthly Interest Rate = 1.50%
Annual Interest Rate = 12 * 1.50%
Annual Interest Rate = 18.00%