Question

The Lakeside Inn $47,170 offers you a loan buy a Tesla. Your job allows you maximum monthly payments of $1,160. Assume monthly compounding. What is the maximum rate you can pay on a 48 month loan?

Group of answer choices

8.38 percent

8.67 percent

8.82 percent

9.01 percent

9.18 percent

Answer 1

Loan Amount = 47170

Maximum monthly payment = 1160

Number of payments = 48

We know that,

Loan amount = Present Value of monthly payment discounted @ monthly rate

47170 = 1160/(1+monthly rate)^1 +1160/(1+monthly rate)^2 +1160/(1+monthly rate)^3 +1160/(1+monthly rate)^4 +1160/(1+monthly rate)^5 +1160/(1+monthly rate)^6 +1160/(1+monthly rate)^7 +.................+ 1160/(1+monthly rate)^48

We will use heat and trial method to get that value for which above equation satisfies

Monthly Rate = 0.6984%

Annual Rate = 12 * 0.6984 = 8.38% Answer

The first option is correct.

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