Question

A local finance company quotes an interest rate of 16 percent on one-year loans. So, if you borrow $30,000, the interest for the year will be $4,800. Because you must repay a total of $34,800 in one year, the finance company requires you to pay $34,800/12, or $2,900.00, per month over the next 12 months. What rate would legally have to be quoted?

Answer 1

Solution:

Computation of Monthly Implicit Interest Rate
Period	Product A
	Cash Flows	IRR
0	-$30,000.00	2.36%
1	$2,900.00
2	$2,900.00
3	$2,900.00
4	$2,900.00
5	$2,900.00
6	$2,900.00
7	$2,900.00
8	$2,900.00
9	$2,900.00
10	$2,900.00
11	$2,900.00
12	$2,900.00

Interest rate legally have to be quoted = 2.36%*12 = 28.32%