Question

# Annuity Payment and EAR You want to buy a car, and a local bank will lend...

Annuity Payment and EAR

You want to buy a car, and a local bank will lend you \$30,000. The loan would be fully amortized over 3 years (36 months), and the nominal interest rate would be 6% with interest paid monthly. What is the monthly loan payment? Do not round intermediate calculations. Round your answer to the nearest cent.
\$

What is the loan's EFF%? Round your answer to two decimal places.
%

#### Homework Answers

Answer #1

Answer a.

Amount borrowed = \$30,000
Period = 3 years or 36 months
Annual interest rate = 6%
Monthly interest rate = 0.50%

Let monthly payment be \$x

\$30,000 = \$x/1.005 + \$x/1.005^2 + ... + \$x/1.005^35 + \$x/1.005^36
\$30,000 = \$x * (1 - (1/1.005)^36) / 0.005
\$30,000 = \$x * 32.871016
\$x = \$912.66

Monthly payment = \$912.66

Answer b.

Effective annual rate = (1 + Monthly interest rate)^12 - 1
Effective annual rate = (1 + 0.005)^12 - 1
Effective annual rate = 1.0617 - 1
Effective annual rate = 0.0617 or 6.17%

Know the answer?
Your Answer:

#### Post as a guest

Your Name:

What's your source?

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Not the answer you're looking for?
Ask your own homework help question
ADVERTISEMENT
##### Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

ADVERTISEMENT