If a bank lends you $10,000 and requires that you make payments of $2500 at the...

Question

Question

If a bank lends you $10,000 and requires that you make payments of $2500 at the end of the next five years, what interest rate is the bank charging?

Answer 1

Answer #1

Let interest rate be x%

At this interest rate;present value of payments=$10000

10000=2500/1.0x+2500/1.0x^2+2500/1.0x^3+2500/1.0x^4+2500/1.0x^5

Hence x=interest rate=7.93%(Approx).

Answer 2

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