Question

A start-up company that makes robotic hardware for CIM (computer integrated manufacturing) systems borrowed $1.2 million to expand its packaging and shipping facility. The contract required the company to repay the lender through an innovative mechanism called "faux dividends," a series of uniform annual payments over a fixed period of time. If the company paid $300000 per year for five years, what was the interest rate on the loan? The interest on the loan was 96.

Answer 1

Answer:

Loan amount = $12 million

Annual payment = $3 million

Period = 5 years

To get interest rate, we will use RATE function of excel:

RATE (nper, pmt, pv, fv, type)

= RATE (5, 3, -12, 0, 0)

= 7.930826%

= 7.93%

The interest on the loan was 7.93 %