Excel File
| Chapter 4 - 47 | ||||
| Calculating EAR | ||||
| A local finance company quotes an interest rate of 16.6% on one year loans. | ||||
| So if you borrow 23,000 the interest for the year will be 3,818. | ||||
| Because you must repay a total of 26818 in one year, the finance company | ||||
| requires you to to pay 26,818/12, or 2,234.83 per month. | ||||
| Is the interest rate on the loan 16.6%? | ||||
| What rate would legally have to be quoted? | ||||
| What is the effective annual rate? | ||||
| PV | 23000 | |||
| PMT | 2234.83 | |||
| Nper | 12 | |||
| Rate | 2.45% | =RATE(D16,D15,-D14) | ||
| APR | 29.35% | =D18*D16 | ||
| EAR | 33.64% | =EFFECT(D20,D16) | ||
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