Janet’s payments on her $12,500 car are
$420 a month for 3 years. Assuming that interest is compounded
monthly, what interest rate is she paying on the car
loan?

Question

Janet’s payments on her $12,500 car are
$420 a month for 3 years. Assuming that interest is compounded
monthly, what interest rate is she paying on the car
loan?

campbell_st · Answer

well you know the future value of the loan 

the number of time periods is 36

420 x 36 = A or FV      

the present value is PV = 12500

then using the compound interest formula

$$15120 = 12500 \times (1 + \frac{r}{100})^{36}$$ 

just solve for r

rock_mit182 · Answer

thanks a lot

rock_mit182 · Answer

where did come from the 100 ?

campbell_st · Answer

the interest rate you calculate will be a monthly rate... 

so you make need to convert it to a yearly value

campbell_st · Answer

well the version of the formula I use... does the conversion of the percentage in the calculation 

some people convert the rate from a percentage to a decimal before substituting