You want to borrow $95,000 from local bank to invest in your new business

Finance Feb 24, 2021

You want to borrow $95,000 from local bank to invest in your new business. You can afford to make monthly payments of &1950, but no more. What is the highest annual rate you can afford on a 60-month loan?

Expert Solution

Computation of Interest Rate using Rate Function in Excel:

=rate(nper,pmt,-pv,fv)*12

Here,

Rate = Interest Rate = ?

Nper = 60 Months

PMT = $1,950

PV = $95,000

FV = 0

Substituting the values in formula:

=rate(60,1950,-95000,0)*12

Rate or Interest Rate = 8.52%

So, the highest annual rate you can afford on a 60-month loan is 8.52%.

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