CFA Level 1: Calculation of Annual Interest Rate

Calculate Annual Interest Rate: CFA Level 1

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Question

If you buy an item for $1,500 and agree to pay for it with 36 monthly payments of $55.50, beginning next month, what annual interest rate, compounded monthly, are you being charged?

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Explanations

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A. B. C. D. E.

E

The interest rate returned by the calculator will be the periodic interest rate. It must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 36 N, 1500 PV, 55.50 +/- PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 36 n, 1500 PV, 55.50 CHS PMT, 0

FV, i. Then press 12 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.

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