You have decided to buy a car that costs $34,100. The dealer offers you a 5-year loan with monthly
payments of $695 per month. What is the annual nominal interest rate on the loan?
Mr.j
Mr.Jones took out a $18,000.00 loan. he figured out that after 5 years,he will have paid $1,575.00 in interest what is the interest rate on his loan.
To find the annual nominal interest rate on the loan, we need to calculate the total amount paid over the course of 5 years and the total interest paid. We can then use this information to determine the interest rate.
First, let's calculate the total amount paid over the 5-year loan period. Since the monthly payment is $695, we can multiply it by the total number of months in 5 years (60 months):
Total amount paid = Monthly payment x Number of months
Total amount paid = $695 x 60
Total amount paid = $41,700
Next, let's calculate the total interest paid. The total interest paid can be obtained by subtracting the initial loan amount from the total amount paid:
Total interest paid = Total amount paid - Loan amount
Total interest paid = $41,700 - $34,100
Total interest paid = $7,600
Now, to find the annual nominal interest rate, we can divide the total interest paid by the initial loan amount and then divide it by the loan duration in years:
Annual nominal interest rate = (Total interest paid / Loan amount) / Loan duration in years
Annual nominal interest rate = ($7,600 / $34,100) / 5
Annual nominal interest rate ≈ 0.0449 or 4.49%
Therefore, the annual nominal interest rate on the loan is approximately 4.49%.