Interest rate = 0.05239 OR 5.239%
You can enter any of the two values
Explanation
Let ....... x % is the interest rate that makes him indifferent between the two options.
Annuity = 548 per month
Present value of annuity = 548 * [ 1 - (1+x )-n ] / x = 28871
= 548 * [ 1 - (1 + x )-60 ] / x = 28871
n = 5 Years * 12 = 60 months
For solving the above equation, use the excel function ......... = RATE(nper, pmt, pv)
nper = 60
pmt = 548
pv = - 28871
= RATE(60, 548, - 28871)
= 0.00436594
But we, have to express the interest rate in APR ( annual percentage rate) = 12 * 0.00436594 = 0.05239
OR 5.239%
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