Unhiding interest rates

Let’s get back to our example of Gullible Greta from the vendor financing post and change the numbers a bit. Recall she is in the market for a new living room set and is being quoted a monthly payment.

  • Price: $2700
  • Term: 24 months
  • Payment: A reasonable $145 per month
  • What is the implied interest rate Greta is being charged and is it a good deal?

Using our HP12C Platinum here we go

Hit these keys

Step 1: 2700 = PV

Step 2: FV = 0

Step 3: N= 24

Step 4: so first 145 then CHS to change it to -145 then press PMT (CHS = change sign)

Step 5: Press the i key to get the interest rate =2.14

However that is the per period meaning monthly rate. We now multiply this by 12 as there are 12 months in a year. The annual interest rate is 25.66%. That’s high!  Greta should move on and seek a better deal. She has the power to evaluate deals now.

BTW you don’t need to buy this calculator as there are others that do the same but with slightly different keystrokes (TI BA II Plus and Sharp EL). I am using this HP as it is the simplest to learn and the manual is good. There are also emulator apps that will do the same. The point is to show you that you don’t need to be an MBA to see if the deal is good.

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