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You want to buy a new sports coup for $76,500, and the finance office at the...

You want to buy a new sports coup for $76,500, and the finance office at the dealership has quoted you an APR of 5.8 percent for a 72 month loan to but the car. What will your monthly payment be?
what is the effective annual rate on this loan?
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Answer #1

Monthly loan payment is calculated using PMT function in Excel :

rate = 5.8% / 12   (converting annual rate into monthly rate)

nper = 72 (72 month loan)

pv = 76500 (loan amount)

PMT is calculated to be $1,260.62

Monthly loan payment is $1,260.62

Effective annual rate (EAR) = (1 + (APR/n))n - 1

where n = number of compounding periods per year

Effective annual rate (EAR) = (1 + (5.8%/12))12 - 1

Effective annual rate (EAR) = 5.9567%

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