A new car promotion offer 0.9% compounded monthly interest for the first 36 months on a loan of $57,000. The payments on this loan are $1,000 per month for five years. What annually compounded interest rate is being applied to the loan for the last two years?

Question

Quizplus · Accepted Answer

The monthly payment of $1,000 for 60 months totals $60,000. The first 36 months have a known interest rate of 0.9% compounded monthly. To find the annual interest rate for the last 24 months, we calculate the remaining balance after 36 months and determine the rate needed to amortize this balance over the remaining 24 months with the given payments. The correct annual interest rate is approximately 15.13%.

A New Car Promotion Offer 0