Business Math Question

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You borrow $2,600 and repay the loan in 12 monthly installments of $232.

What was the finance charge per $100 of the amount financed?

  • Business Math Question -

    let the monthly interest rate be i
    232( 1 - (1+i)^-12)/i = 2600
    (1 - (1+i)^-12 )/i = 11.2069
    1 - (1+i)^-12 = 11.2069 i
    1 - (1+i)^-12 - 11.2069 i = 0

    This equation cannot be solved by the usual standard methods.
    we can try some values of i
    let i = .01
    LS = .0004818 , RS = 0 , not a bad guess

    let i = .011
    LS = -.000249 , hey that's even closer, but now it is negative,
    So i must be between .01 and .011
    do you get the idea?

    correct to 5 decimals I got i = .01068

    so the monthly charge on $100 is $1.068

    Unusual way to state the question, usually it would be stated as an annual interest rate with the stated compound interest period

    e.g. in this case:
    .01068(12) or 12.816 % interest per annum compounded monthly.

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