3- You are purchasing a $16,000 used automobile, which is to be paid for in 36...

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Question

Answer 1

Answer #1

First find the monthly rate of interest effective on this loan

-16000 + 517.68(P/A, i%, 36) = NPV = 0

For i = 0.5%, NPV is 1019.95 and for i = 1%, NPV is -410.94

Find the interest rate = 0.5% + (1% - 0.5%)*(1019.95/(1019.95+410.94)) = 0.85%

Nominal rate of interest is found as 0.85%*12 = 10.2%

Hence APR is 10.2%

Answer 2

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