An advertisement for a new car offers 1.2% compounded monthly financing for the first 24 months of a 5-year, $35,000 loan. The payments are $650 per month for the entire 60 months. What monthly compounded nominal interest rate is being applied to the final three years?

Question

Quizplus · Accepted Answer

The correct nominal interest rate for the final three years is calculated by first determining the remaining balance after the initial 24 months of payments at the 1.2% monthly compounded rate. Then, using the remaining balance, the $650 monthly payment, and the 36 months left, we solve for the nominal interest rate that makes the present value of these payments equal to the remaining balance. The calculation involves iterative methods or financial calculators, and the correct nominal interest rate that fits these conditions is 10.258%.

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