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Suppose that you borrow $10,000 today from Falcon Savings & Loan (S&L) and promise to pay...

Suppose that you borrow $10,000 today from Falcon Savings & Loan (S&L) and promise to pay this loan back in 6 years with a total payment (principal plus interest) of $14,500. What is the effective annual interest rate that the S&L is charging? Assume monthly compounding. Do not round at intermediate steps in your calculation. Express your answer in percent. Round to two decimal places. Do not type the % symbol.

Solutions

Expert Solution

Calculation of annual percentage rate using the RATE function:

=RATE(nper,pmt,pv,fv)

=RATE(6*12,0,-10000,14500)*12

=6.21%

Where,

nper is no of periods,

pv is present value,

fv is future value

calculation of effective interest rate:-

=(1+r/n)^n-1

=(1+6.21%/12)^12-1

=6.39%

jeff jeffy answered 2 years ago
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