Question

2.   You just formed your own post-production company and is looking for a loan to finance the purchase of a unit in a commercial building for a studio. The best offer you can get is a 8-year, $5,000,000 loan at 6% from a local bank.
a.   What is the monthly payment on this loan?               
b.   What is the effective annual rate of this loan?              

Answer 1

PV =P{1-(1+r)^-n /r}

PV =5000000

R =6%= 6/12 = 0.5%

N= 8= 8*12 =96

5000000 = P {1-(1+0.005)^-96 /0.005

5000000 = P {1-(1.005)^-4*3*8 /0.005

5000000 = P {1- (1/1.614142708460865) /0.005

5000000 = P {(1-0.6195239087339007)/0.005

5000000 =P{(0.3804760912660993)/0.005

5000000 = P (76.09521825321987)

P = 5000000/ 76.095218253219871

P =65707.15

MONTHLY PAYMENT OF THIS LOAN IS RS 65707.15

B EFFECTIVE RATE OF INTEREST

= (1+R)^12 -1

= (1+0.005)^12-1

= 1.061677811-1

= 0.06177811

= 6.1778%