Question

In: Accounting

A student loan paid faithfully for 23 years had the following statistics: Borrowed: $26,400 Paid back...

A student loan paid faithfully for 23 years had the following statistics: Borrowed: $26,400 Paid back to date: $32,700 Still Owes: $45,276.63

Assuming the student calculated the amount paid back without discounting them and the payments are equal and paid monthly, how much did they pay each month?

Compute the annual rate of interest that the student agreed to pay when they took out the loan. (Hint: Use Excel’s RATE function to calculate this)

Expert Solution

We've to find our the monthly installment & then rate of interest applicable.

Loan Amount = 26,400 $

Loan Tenure = 23 Years * 12 Months = 276

Amount Paid + Due = 32,700 + 45,276.63 = 77,976.63 $

Hence, monthly installment = 77,976.63 / 276 = 282.524

Now, let's apply RATE function in excel

=RATE(nper,pmt,pv,fv,type,guess)

nper = 23

pmt = -282.524

pv = 26,400

fv = 0 (once loan is fully paid)

type = 1 (beginning of period)

guess = leave empty

You'll get 1% monthly rate. Multiply by 12 to get yearly rate.

Answer is 12%

ekkarill92 answered 2 years ago

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