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31 December, 11:17

You have just purchased a car and, to fund the purchase, you borrowed $31,000. If your monthly payments are $493.25 for the next 6 years, what is the APR of the loan?

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  1. 31 December, 11:49
    0
    4.56%

    Explanation:

    The annual percentage rate refers to the rate at which the loan amount is equal to the present value of cash flows

    In mathematically

    Loan amount = Present value of cash flows

    Loan amount = Monthly payment * PVAF (rate, number of years)

    $31,000 = $493.25 * PVAF (rate, 72 months)

    So,

    PVAF (rate, 72 months) = 62.8485

    And, the monthly rate is = 0.38%

    So, the APR is

    = Monthly rate * total number of months in a year

    = 0.38% * 12

    = 4.56%

    The 72 months is

    = 6 years * 12 months

    = 72 months
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