The following instalment payment schedule is for a longterm

The following instalment payment schedule is for a long-term bank loan payable:

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Assuming payments are made annually, what is the interest rate on the bank loan? (Round answer to the nearest whole percent, e.g. 12%.)

Interest Period		Cash Payment		Interest Expense		Reduction of Principal		Principal Balance
Issue date											$115,000.00
1		$27,300.59			$6,900.00			$20,400.59			94,599.41
2		27,300.59			5,675.96			21,624.63			72,974.78
3		27,300.59			4,378.49			22,922.10			50,052.68
4		27,300.59			3,003.16			24,297.43			25,755.25
5		27,300.59			1,545.34			25,755.25			0.00

Solution

Interest rate on the bank loan = Interest Expense/Beginning principal Balance It can be calculated as folllows: Year Interest Expense Beginning Principal Balance Interest rate a b a/b 1 $ 6,900.00 $ 1,15,000.00 6% 2 $ 5,675.96 $     94,599.41 6% 3 $ 4,378.49 $     72,974.78 6% 4 $ 3,003.16 $     50,052.68 6% 5 $ 1,545.34 $     25,755.25 6% Thus, Interest rate 6%