Question

1. You have just purchased a house and borrowed $90,000 towards the purchase. The amount is...

1. You have just purchased a house and borrowed $90,000 towards the purchase. The amount is to be repaid over a period of 11 years in payments of $1,000 each month. What is the Annual Percentage Rate (APR) of the loan?

please explain the formula or excel func you use to solve. thanks!

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Answer #1
This can be solved using the Present value of annuity
Present value of Annuity = P*((1-(1+r)^-n/r)
P is Periodic payment monthly = $ 1,000 /-
r is Rate of Interest = ?
n is No of months = 132 Months
Present Value of Annuity is = $ 90,000 /-
90000=(1000*(1-(1+r)^-132)/r)
1-(1+r)^-132/r=90
Using trail and error "r" is computed as
Annual interst rate "r" is 6.5202% Approx.
Annual Percentage Rate (APR) of the loan is 6.5202%
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