Question

you are financing joes new $20000 car. joe promised to pay you $500 a month for the next 4 years. what is the annual interest rate

Answer 1

n = 4 * 12 = 48 months.

We need to find r and annualize it.

r = 0.770147249% per month compounded monthly

or r = 0.770147249%*12 = 9.241766988% per year compounded monthly

or r = (1+ 0.00770147249)^12 - 1 = 0.09643456461 = 9.643456461% per year compounded yearly.

You can also use a financial calculator with the following inputs to find r.

N = 48

PV = 20,000

PMT = -500

FV = 0

CPT I/Y to get 0.770147249% per month compounded monthly

Can you please upvote? Thank You :-)