If a person is going to borrow $30,000 for a car and pay it off in monthly payments of $637.41 for 5 years the internal rate of return is
A)0%.
B)5%.
C)10%.
D)15%.

Question

Quizplus · Accepted Answer

Internal Rate of Return (IRR) is the rate at which the net present value of cash flows from an investment is equal to zero. In this case, we can use the present value formula to find the IRR.

PV = (PMT/i) x [1 - (1/(1+i)^n)]
Where PV is the present value of the loan, PMT is the monthly payment, i is the interest rate, and n is the number of payments.

Plugging in the given values, we get:
$30,000 = ($637.41/i) x [1 - (1/(1+i)^60)]

We can solve for i using trial and error or an IRR function in Excel. The result is approximately 10%. Therefore, the best choice is C) 10%.

If a Person Is Going to Borrow $30,000 for a Car