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Question

Click here to read the eBook: Comparing Interest Rates Click here to read the eBook: Amortized Loans LOAN AMORTIZATION AND EAR You want to buy a car, and a local bank will lend you $20,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 11% with interest paid monthly. a. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. b. What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places.

Explanation / Answer

N = 60, FV = 0, PV = -20,000, rate = 11%/12

use PMT function in Excel

monthly loan payment = 434.85

b. EAR = (1 + 11%/12)^12 - 1 = 11.57%

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