You just purchased an automobile for $19,450 and must decide how to pay for it. Your local bank has granted you a five-year loan. Annual payments on the loan will be made at the end of each year and the amount of the loan payments, which include principal and interest, is $5,000 per year. What is the interest rate that is being charged on the loan?
$19,450 / $5,000 = 3.890 table factor
Using the PV of an Annuity table (Table 9-4 in the text), for 5 periods, this factor indicates that you are being charged 9% interest.
Business
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