Question

Miguel purchased a hot tub costing $5,070 by taking out an installment loan. He made a...

Miguel purchased a hot tub costing $5,070 by taking out an installment loan. He made a down payment of $1,300 and financed the balance for 24 months. If the payments are $175.77 each month, use the APR formula to find the APR. Round to the nearest hundredth of a percent.

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Homework Answers

Answer #1
  • Loan amount = Cost - Down payment
  • Loan amount = 5070-1300
  • Loan amount = 3770

To calculate the rate of interest we either need a financial calculator or use excel's goal seek function:

We are given the following information:

Payment PMT $                  175.77
Rate of interest r To be calculate
Nomber of years n 2 or 24 months
Monthly payment frequency 12
Loan amount PV $ 3,770.00

We need to solve the following equation to arrive at the required PV:

APR = 11.03%

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