# Determining the Interest rate based on payments

During class today as we were working the problem of the day, several people proposed possible interest rates to go with the interest paid by Henrí in paying off his loan.

Using a calculator similar to the one we used on Friday, it is possible to determine the interest rate.

I like this calculator, but I’m sure there are plenty more to choose from. Plugging in our example of $274/month for 36 months returns an interest rate of 6.05% for a total interest cost of$864.00. Several suggested that you could simply divide $\frac{864}{9000}=9.6$%?

Why does an interest rate of 6.05% per year end up with a total cost of 9.6%? Why would it not be $.0605\cdot 3=18$%?

Ponder those questions for next time.

Remember to take a look at the rest of the exploration for 16.3 (page 453, green book) and get started on the homework, but the homework won’t be due until Thursday. I do expect you to complete the exploration before class on Wednesday.

$R=\frac{P\cdot i}{1-{{(1+i)}^{-n}}}$