4. Amortization schedule with periodic payments. Moulton Motors is advertising t

Question

4. Amortization schedule with periodic payments. Moulton Motors is advertising the following deal on a new Honda Civic: Monthly payments of $382.45 for the next 60 months and this beauty can be yours!" The sticker price of the car is $18,000. If you bought the car, what interest rate would you be paying in both APR and EAR terms? If you bought the car, what monthly interest rate would you be paying? % (Round to four decimal places.) If you bought the car, what annual percentage rate (APR) would you be paying? % (Round to two decimal places.) If you bought the car, what effective annual rate (EAR) would you be paying? % (Round to two decimal places.)

Explanation / Answer

a. FV 0, PV = -18,000, N = 60, PMT = 382.45

use rate function in Excel

interest rate = 0.8334%

b. APR = 0.8334%*12 = 10.00%

c. EAR = (1 + 0.8334%)^12 - 1 = 10.47%

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