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What is Installment financing? Other terms associated with installment financing and its definition Presentation and discussion of examples and solutions
computed his annual interest rate to be [0.07(7,000) x 4]/7,000 = 0.28 (28%) He computed interest rate per quarter then he divided the resulting rate, and multiply it with the value of the loan as presented below:
[490 x 4] / 7,000 which resulted to 28%
By Linear Interpolation
To find i% / quarter by using similar triangles: ( A/P, 6%, 50) = 0.0634 ( A/P, 7%. 50) = 0.0725 (See Figure 1.) 7% - i%/ 7% - 6% = 0.0725 0.07 / 0.0725 0.0634 i % = 7% - 1%(0.0025/0.0091)
C d B
7% Line de Line BA = Line Cd Line CB
A
6%
Figure 1
By the use of Excel financial function RATE function which is represented by: Nper or the total number of payment period for the purchase of merchandise or loan
Pmt or the payment made each period, and Pv the total value/total amount