Question

Bank offers 3-year credit in amount of 20,000 PLN. Credit installments are fixed and paid at the end of
3-month period. Each installment consists of principal and interest and equals 2,131.04 PLN. What is
the nominal rate over half a year for this credit?

Answer 1

The installment repayments when discounted using the 3 month period interest rate should equal the initial credit amount so as to conform to the rules of the time value of money.

Credit Amount = 20000 PLN, Tenure = 3 years or 12 3-month period, Installments = 2131.04 PLN

Let the 3-month rate be R

Therefore, 20000 = 2131.04 x (1/R) x [1-{1/(1+R)^(12)}]

Using trial and error method/EXCEL's Goal Seek Function we get:

R = 0.04 or 4 % for 3-months

Nominal Half-Yearly Rate (6-month rate) = 2 x 4 = 8 %