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Jesse owes $7000, he repays the debt with 6 quarterly payments of $1750.00. Using linear interpolation...

Jesse owes $7000, he repays the debt with 6 quarterly payments of $1750.00. Using linear interpolation determine the nominal rate compounded monthly being charged.

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Answer #1

Principal loan amount = $7,000

Quarterly repayment amount = $1,750

Number of quarters = 6

Following equation can be formed-

Loan amount = Present value of future payments

$7,000 = $1,750 * PVAF (R%, 6 periods)

PVAF (R%, 6 Periods) = 4

Using Present value table, R is coming out to be 13% approx

Now, R Is the rate of interest for one quarter (3 months)

Thus rate of interest per months = R 3months

= 13% 3months

= 4.33%

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