Question

You want to buy a new sports coupe for $74,200, and the finance office at the dealership has quoted you a loan with an APR of 6.6 percent for 60 months to buy the car.

1.What will your monthly payments be? (Round 2 decimals)

2. What is the effective annual rate on this loan? (Round 2 decimals)

Answer 1

a.Information provided:

Present value= $74,200

Interest rate= 6.60%/12= 0.55% per months

Time= 60 months

The monthly payment is calculated by entering the below in a financial calculator:

PV= -74,200

I/Y= 0.55

N= 60

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

The value obtained is 1,455.29.

Therefore, the monthly payment is $1,455.29.

b.The effective annual rate is calculated using the below formula:

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

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

EAR= (1+0.0660/12)^12-1

        = 1.0680-1

        = 0.0680*100= 6.80%

Therefore, the effective annual rate is 6.80%.