Question

You have just borrowed $140,000 to buy a condo. You will repay the loan in equal monthly payments of $1,474.51 over the next 25 years. a-1. What monthly interest rate are you paying on the loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Monthly interest rate % a-2. What is the APR? (Do not round intermediate calculations. Enter your answer as a whole percent.) APR % b. What is the effective annual rate on that loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Effective annual rate

Answer 1

a.

NPER= number of payments = 25*12 = 300

PMT = Annual payment = $1474.51

PV = present value = $140,000

FV = Future value = 0

Beginning= type= 0

I/Y = rate = ?

Interest rate 1.00%

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Excel function:

=Rate(300,-1474.51,140000,0,0)

= 1.00%

Monthly interest rate = 1.00%.

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a2.

Annual percentage rate (APR) = 1%*12 = 12%

APR = 12%

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b.

Effective annual rate = (1+monthly rate)^periods - 1

Effective annual rate = (1+1%)^12 - 1

Effective annual rate = 1.1268 - 1

Effective annual rate = 12.68%.