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You want to borrow $93,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,850, but no more. Assuming monthly compounding, what is the highest APR you can afford on a 60-month loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Interest rate %

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Answer:

The highest affordable APR is 7.192%.

Explanation:

A person wants to borrow $93,000 from local bank to buy a new sailboat.

The maximum affordable monthly payment or EMI is $1,850.

The loan period is 60 months.

Suppose, monthly interest rate = r

93000 = [tex]1850\ \times\ \frac{ \frac{1\ -\ 1}{(1+r)^6^0}}{r}[/tex]

At r =.6 %

Present value of loan repayment = $92984.94

At r=.5%

Present value of loan repayment = $95692.29

Through the method of interpolation,

r= .5% + ((95692.29 - 93000)/( 95692.29 - 92984.94))*(.6% - .5%)

r=.5994%

Annual interest Rate

= .5994%*12

= 7.192%.

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