You want to borrow $77,000 from your local bank to buy a new sailboat. You can a

Question

You want to borrow $77,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,300, but no more.

Assuming monthly compounding, what is the highest rate you can afford on a 78-month APR loan? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Assuming monthly compounding, what is the highest rate you can afford on a 78-month APR loan? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Loan amount = $77000

Monthly payments = $1300

Number of months = 78

Therefore APR can be calculated by using this formula:

PV = (Monthly payments/APR%)(1 – 1/(1+APR%)number of months

Or use excel spreadsheet and use formula

=Rate (nper, pmt, PV,)

And by using this formula we get monthly APR as = 0.7338%

And Annual APR = 8.8056% or 8.81 %

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