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 |
% |
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%
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