You borrow 10,000 from a loan company. The company wants you to pay it back in equal monthly installments in 10 years under a monthly interest rate of i%.
If the equivalent future amount of your payments at the end of year 10 is 33,000, what is the nominal annual rate?
First of all we are required to calculate the nominal interest rate. Then, we can determine the monthly installment using the calculated interest rate.
Present value = $ 10,000
Future value = $ 33,000
Time = 10 years
Let us assume the nominal rate of return = i% per year
Now plug in all the values in the above equation we get
Nominal interest rate = 12.68% per year
Now calculating the monthly installment using nominal interest rate = 12.68% per year
Borrowed amount = $ 10,000
Time = 10 years = 120 months
Monthly installment = $ 147.43
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