Question

39. Celeste just borrowed 34,200 dollars. She plans to repay this loan by making equal quarterly payments of 1,897.65 dollars for 24 quarters. If she makes her first quarterly payment later today, then what is the quarterly interest rate on the loan? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Answer 1

Information provided:

Present value= $34,200

Time= 24 quarters

Quarterly payment= $1,897.65

The question pertains to annuity due quarterly payments. Annuity due refers to annuity that occurs at the beginning of a period.

This is solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode.  Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

The yield to maturity is calculated to solve the question.

The yield to maturity is calculated by entering the below in a financial calculator:

PV= -34,200

N= 24

PMT= 1,897.65

Press the CPT key and I/Y to compute the yield to maturity.

The value obtained is 2.67.

Therefore, the quarterly interest rate on the loan is 0.0267.

In case of any query, kindly comment on the solution.