Question

You want to borrow $115,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $2,250, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan

Answer 1

Answer:

APR 6.498%

Explanation:

We solve for rate using excel goal seek

we write on A1:

=PV(A2;60;2,250)

Now, on A2 wirite any number as a placeholder

Last we use goal seak tool to make the A1 value of 115,000 changin A2 (which is the rate)

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

C 2,250.00

time 60

rate 0.00541501

$2250 \times \frac{1-(1+0.00541501038042548)^{-60} }{0.00541501038042548} = PV$

PV $115,000.0007

now, this rate will be monthly so we multiply by 12

0.00541501 x 12 = 0,06498012‬ = 6.498%