A mortgage loan calls for monthly payments of $750 for 25 years. If $80,000 was borrowed, what semiannually compounded nominal rate of interest is being charged?

Question

Quizplus · Accepted Answer

The correct nominal interest rate can be found using the formula for the payment of an annuity, which incorporates the loan amount, payment amount, and number of payments. Given the complexity of solving directly for the interest rate in this formula, financial calculators or spreadsheet software are typically used to compute the interest rate that matches the given payment, loan amount, and term. In this case, the correct answer is found by inputting the given values into such a tool, which yields a semiannually compounded nominal rate of interest of approximately 10.635%.

A Mortgage Loan Calls for Monthly Payments of $750 for 25