You owe $32,000 to your parents for funding some of your college fees. You promise to make 5 annual payments of $8,200 to settle your debt. Approximately what interest rate are your parents charging, if you make the 5 annual payments beginning one year from now?

You owe $32,000 to your parents for funding some of your college fees. You promise to make 5 annual payments of $8,200 to settle your debt. Approximately what interest rate are your parents charging, if you make the 5 annual payments beginning one year from now?

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.18E

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

You owe $32,000 to your parents for
funding some of your college fees. You
promise to make 5 annual payments of
$8,200 to settle your debt. Approximately
what interest rate are your parents
charging, if you make the 5 annual
payments beginning one year from now?

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