You want to buy a car, and a local bank will lend you $25,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 9% with interest paid monthly. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. $
What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places. %
| a) | Monthly payment | $ 518.96 | |||||||||||
| Monthly Interest rate | = | 9%/12 | = | 0.0075 | |||||||||
| Present Value of annuity of 1 | = | (1-(1+i)^-n)/i | Where, | ||||||||||
| = | (1-(1+0.0075)^-60)/0.0075 | i | 0.0075 | ||||||||||
| = | 48.17337 | n | 60 | ||||||||||
| Monthly Payment | = | Loan Amount/Present Value of annuity of 1 | |||||||||||
| = | $ 25,000 | / | 48.17337 | ||||||||||
| = | $ 518.96 | ||||||||||||
| b) | EAR | 9.38% | |||||||||||
| EAR | = | ((1+(i/n))^n)-1 | Where, | ||||||||||
| = | ((1+(0.09/12))^12)-1 | i | Annual nominal interest rate | 0.09 | |||||||||
| = | 9.38% | n | number of times compounding in a year | 12 | |||||||||
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