Question

Your child's orthodontist offers you two alternative payment plans. The first plan requires a $4,000 immediate up-front payment. The second plan requires you to make monthly payments of $137.41, payable at the end of each month for 3 years. What nominal annual interest rate is built into the monthly payment plan?

Answer 1

Answer:

rate = 1.19663%

Explanation:

$C * \frac{1-(1+r)^{-time} }{rate} = PV$

We have to calculate the rate of an annuity of 36 months at $137.41

$137.41 * \frac{1-(1+r)^{-36} }{rate} = 4,000$

This is done either with excel, a financial calculator or iterative process.

geend up with

rate = 0.0119663