Fiddler Company has a loan balance of $853.02 and must make equal payments of $100 at the end of each of the next 10 months. What is the monthly rate of interest that Fiddler Company is paying?
A) 2%
B) 2.5%
C) 3%
D) 4%

Question

Quizplus · Accepted Answer

The monthly payment of $100 over 10 months totals $1000, which is more than the loan balance of $853.02. This indicates that interest is being charged. Using the formula for the present value of an annuity, the monthly interest rate that equates the present value of the payments to the loan balance is approximately 3%.

Fiddler Company Has a Loan Balance of $853