If a person is going to borrow $360,000 for a home and pay it off in monthly payments of $1,932.56 for 30 years the internal rate of return is
A)0%.
B)5%.
C)10%.
D)15%.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) for a loan is essentially the interest rate that makes the net present value (NPV) of all cash flows (both positive and negative) from the loan equal to zero. In this case, the monthly payment is $1,932.56 for 30 years (or 360 months) for a loan amount of $360,000. The IRR that corresponds to these cash flows is approximately 5%, as it is the interest rate that would make the present value of the monthly payments equal to the loan amount. Calculating the exact IRR requires using financial calculators or software, as it involves solving for the rate in the NPV equation, but among the given options, 5% is the correct choice.

If a Person Is Going to Borrow $360,000 for a Home