Question

You want to buy a new sports coupe for $75,500, and the finance office at the dealership has quoted you a loan with an APR of 7.9 percent for 72 months to buy the car.
a.	What will your monthly payments be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
	b. What is the effective annual rate on this loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. monthly payment? b. effective annual rate percentage?

Answer 1

a.Information provided:

Present value (PV)= $75,500

Time (N)= 72 months

Interest rate (I/Y)= 7.90%/12= 0.6583% per month

Enter the below in a financial calculator to compute the monthly payment:

PV= -75,500

N= 72

I/Y= 0.6583

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 1,320.08.

Thereby, the monthly payment is $1,320.08.

b.Effective annual rate is calculated using the below formula:

EAR= (1+r/n)^n-1

Where r is the interest rate and n is the number of compounding periods in one year.

EAR= (1+0.079/12)^12 - 1

= 1.0819 - 1

= 0.0819*100

= 8.19%.