You have just take out a 30-year,$120,000 mortgage on your new home.This mortgage is to be repaid in 360 equal end-of-month installments.If each of the monthly installments is $1,500,what is the effective annual interest rate on this mortgage?
A) 15.87%
B) 14.75%
C) 13.38%
D) 16.25%
E) 16.49%

Question

Quizplus · Accepted Answer

Step 1 - Calculate the nominal interest rate for the annuity.
Using a financial calculator:
N = 360, PV = -120,000, PMT = 1,500, FV = 0, cpt I/Y = 1.235%
1.235% × 12 = 14.819%
Step 2 - Convert the nominal rate to the effective rate.
Effective interest rate = 11ea7fdb_fc1c_4d75_a768_f9df85669710_TB2902_11 - 1
Effective interest rate = 11ea7fdb_fc1c_4d76_a768_6d2ea7558fae_TB2902_11 - 1 = 15.87%

You Have Just Take Out a 30-Year,$120,000 Mortgage on Your