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J&j finance comapny advertises 12% loans with the following loan terms: if you borrow $2000 for...

J&j finance comapny advertises 12% loans with the following loan terms: if you borrow $2000 for 2 years you will owe them 2000(1.12)^2=$2508.80. they establish the payments at 2508.80/24=$104.53 per month for the next 24 months. you wonder if this is really a 12% loan. what is the APR of the loan?
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Answer #1

APR of the loan can be calculated using financial calculator as

PV= 2000

N=24

PMT= -104.53

Solve for I/Y as 1.9. This is the monthly rate.

APR= 12* monthly rate

= 12* 1.90

= 22.78%

In Excel, we can compute the monthly rate using RATE functionas follows

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