# Help finding IRR

#### sirrion13

##### New Member
I have a problem that I am doing for a basic Engineering statistics class that goes like this:

You take out a loan to pay the remaining 15,000 on your car. The dealership gives you a monthly payment of 512 for 48 months. What is the dealers rate of return on this loan?

I have got a cash flow diagram set up and i was trying to use the present worth formula for even payment series to slove for interest. I tried plugging the values into Excell, IRR(values, guess), and got 2%. This is incorrect.

Any help would be great.

-Lance

#### jerryb

##### New Member
if you want the interest rate recieved by the lender then let:

P = principle
i = periodic interest rate
R = payment amount
n = # of payments

and solve this formula for i:

R = (P*i)/(1-(1+i)^(-n)

then since the reciept of loan payments is a simple interest situation, multiply by 12 to get the annual interest rate. since there is no compounding that should be your answer. BTW it should be a quite high number, in fact one that is completly unrealistic and may in fact be illegal.

cheers
jerry