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How to calculate interest rate from annuity formula

This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.

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September 23, 2013 at 11:27 am #141055
Kay
Member
- Topics: 5
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Eg: a person has to pay 10 annuities of $500 at the end of each year.
The PV of the loan is $ 3500
The formula for annuity is PV = Annuity x [1 – (1 + i)^-n] / i
How can we calculate the implicit interest rate on the loan?
February 6, 2014 at 5:30 am #155357
John Moffat
Keymaster
- Topics: 57
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You do not need to use the formula. Just use the annuity tables backwards.
To get a PV of 3500, the annuity factor has to be 7.
Look along the 10 year row in the tables and see which rate of interest gives an annuity factor closest to 7.
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