Question

Problem 5-46 EAR of Add-On Interest Loan (LG7, LG8)

To borrow $1,550, you are offered an add on interest loan at 8.3 percent with 12 monthly payments. Compute the 12 equal payments. (Round your answer to 2 decimal places.)

  

Equal payments

$

  

Compute the EAR of the loan. (Do not round intermediate calculations and round your answer to 2 decimal places.)

  

EAR

%

Answer 1

1)Monthly rate = 8.3/12 = .69167%

Equall payment =Amount borrowed /PVA .69167%,12

       =1550 / 11.47747

       = $ 135.05

2)EAR = [1+APR/n]^n   -1

      =[1+.083/12]^12 - 1

         =[ 1+.0069167]^12   - 1

         = 1.0862-1

        = .0862 or 8.62%