1a.) If you take out an $7,900 car loan that calls for 60 monthly payments start

ID: 2775246 • Letter: 1

Question

1a.) If you take out an $7,900 car loan that calls for 60 monthly payments starting after 1 month at an APR of 12%, what is your monthly payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Monthly Payment: $

1b.) What is the effective annual interest rate on the loan? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Effective Annual Interest Rate:

Monthly Payment: $

Explanation / Answer

Ans 1.

Formula for loan amortization =

A= [i*P*(1+i)^n]/[(1+i)^n-1]

Amt $

A = periodical installment

P=Loan amount =

7900

i= interest rate per period =

1% per month

n=total no of payments

A = [0.010*7900*1.01^60]/[1.010^60-1]

=175.695

So the monthly installment is $ 175.695

Ans 2.

Effective annual interest rate =EAR= (1+APR/n)n-1

Where APR =12% , n= 12

EAR= (1+0.12/12)12-1

=0.127

=12.7%

So Effective interest rate is 12.7%