A Company Borrowed $1500. It Must Make Monthly Payments Of $40.50 For 42 Months To Pay Off The Loan. Use The Constant Ratio Formula To Find The Annual Percentage Rate?


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Oddman answered
This site gives a formula for a "constant ratio" as

MC is the mortgage constant
  I is the interest per month (1/12 the annual rate)
  a is the period in months.

It is not possible to solve this to give a formula for the interest rate. Iterative methods can be used to obtain an approximate value of I.

For your loan numbers, the annual percentage rate (12i) is approximately 7.19%.

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