the first national bank has agreed to lend you $30,000 today, but you must repay $42,135 in 3 years. What rate is the bank is charging you?

Answer 1

using the present value of $1 table:

30000/42135 = .711780248

left column three periods, across to .71178 = 12%

30000*1.12.^3 =42147.84

Exact rate = 11.98862* using the formula PV = 1/(1+ i)^n

30000*1.1198862^3 = 42134.99