solve for interest in PV analysis

[Guest]

Here's my issue:

I'm trying to decide if I should pay off a college pre-paid tuition program, or stick with the payments. Here are the figures:

$13,080.61 = Payoff amount
$166 = monthly payments for 10 years = $19,920 (166*120)

How do I solve for the interest rate they have assigned to this payoff amount?

Thanks,

Mike

 

[Paul Corrado]

The APR = 9.04% = RATE(120,-166,13080.61)*12

The EAR = 9.43% = (1+RATE(120,-166,13080.61))^12-1

That rate appears high.

PC

Here's my issue:

I'm trying to decide if I should pay off a college pre-paid tuition

program, or stick with the payments. Here are the figures:

 

[Guest]

Paul

Thanks for the help

What's EAR

Mik

----- Paul Corrado wrote: ----

The APR = 9.04% = RATE(120,-166,13080.61)*1

The EAR = 9.43% = (1+RATE(120,-166,13080.61))^12-

That rate appears high

P

 

[Norman Harker]

Hi mdf!

EAR = "Effective Annual Return"

An APR is a rate quoted in annual terms together (usually) with a
compounding frequency whereby the interest is compounded at
APR/Frequency for each period of compounding.

An EAR is a rate quoted in annual terms and is the rate returned each
year.

The RATE function used by Paul has NPer in months and PMT in months
and thus returns the Monthly effective rate. This is why he multiplies
by 12 to get the APR(12)

To get EAR from a periodic rate we use: =(1+Eff)^Freq-1 which is the
basis of Paul's second formula
--
Regards
Norman Harker MVP (Excel)
Sydney, Australia
(e-mail address removed)
Excel and Word Function Lists (Classifications, Syntax and Arguments)
available free to good homes.

 

[Guest]

Norman

Thanks for the clarification

Mike

 

[Norman Harker]

Hi mdf!

Thanks for thanks. Never hesitate to ask why, how and what.

That EAR is now used in UK a lot but just to be awkward their
legislation calls it AER
--
Regards
Norman Harker MVP (Excel)
Sydney, Australia
(e-mail address removed)
Excel and Word Function Lists (Classifications, Syntax and Arguments)
available free to good homes.

 

[Paul Corrado]

Norman

Thanks for adding the additional information

PC