If I borrow $10K today, pay back $20K 10 years from now (no monthly payment what so ever.) What is the real Interest Rate of that deal? (compared to regular monthly compound interest the bank charge regular loan) Can you provide the formula?
You will pay an interest rate of =7.18%. Here is the formula to use:
FV=PV[1 + R]^N
$20,000=$10,000[1 + R]^10, solve for R. Divide both sides by 10,000
2=[1+R]^10 take the 10th root of both sides
1+R =1.0718
R=1.0718 - 1 x 100
R=7.18%
