Calculate Weighted Average Cost of Capital

How to calculate the weighted average cost of capital based on multiple loans?

Let's assume you have $23,000 student loan at 6 percent APR, $12,000 car loan at 7 percent APR, and $342,000 home loan at 3 percent APR. What is the current weighted average cost of capital for you?

Calculation of Weighted Average Cost of Capital

The current weighted average cost of capital for you is approximately 3.309%.

To find the weighted average cost of capital, we need to consider the interest rates and loan amounts for each loan.

First, let's calculate the weighted average cost of the student loan. Multiply the loan amount ($23,000) by the APR (6 percent), then divide by 100 to convert the percentage to a decimal:

$23,000 * 0.06 / 100 = $1,380

Next, calculate the weighted average cost of the car loan. Multiply the loan amount ($12,000) by the APR (7 percent), then divide by 100:

$12,000 * 0.07 / 100 = $840

Lastly, calculate the weighted average cost of the home loan. Multiply the loan amount ($342,000) by the APR (3 percent), then divide by 100:

$342,000 * 0.03 / 100 = $10,260

Now, add up the weighted costs for each loan:

$1,380 + $840 + $10,260 = $12,480

Next, divide the total weighted costs by the total loan amount:

$12,480 / ($23,000 + $12,000 + $342,000) = $12,480 / $377,000 = 0.03309 (approximately)

Finally, multiply the result by 100 to convert it to a percentage:

0.03309 * 100 = 3.309% (approximately)

Therefore, the current weighted average cost of capital for you is approximately 3.309%.