Question

You want to borrow $97,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $2,050, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan?

Answer 1

Answer:

9,7699353%

Explanation:

We need to calculate the Rate of return for the loan with 60 payment of 2050 every month of a loan for 97,000

$2050*  \frac{1-(1+rate)^{60} }{rate} = 97,000$

This is formula is completed  using lineal interpolation, or a financial calculator, or a computer software like Excel among others.

This will give us a monthly rate of 0,81416%

Now to convert to Annual Percentage rate we multply by 12

and get 9,7699353%