Question

You want to borrow $71,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,400, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 66-month APR loan?

Answer 1

Answer:

rate = 9.91 %

Explanation:

given data

borrow amount = $71,000

monthly payments = $1,400

time = 66 month

solution

we get here rate by apply present value formula that is

present value = $\frac{monthly\ payments\ (1-(1+r)^{-t}}{r}$    .....................1

$71,000  = $\frac{1400\ (1-(1+r)^{-66}}{r}$  

50.71 = $\frac{ (1-(1+r)^{-66}}{r}$  

solve it we get

r = 0.8264 %  monthly

rate = 0.8264  × 12 yearly

rate = 9.91 %