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Forums › ACCA Forums › ACCA AFM Advanced Financial Management Forums › How to calculate interest rate from annuity formula
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?
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.