Question

You want to buy a car, and a local bank will lend you $20,000. 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%? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer 1

Given,

Loan amount = $20000

No. of months (n) = 36 months

Interest rate = 6% or 0.06

Solution :-

Monthly interest rate (r) = 0.06/12 = 0.005

Monthly loan payment

= (loan amount x r) [1 - (1 + r)^-n]

= ($20000 x 0.005) [1 - (1 + 0.005)^-36]

= $100 [1 - (1.005)^-36]

= $100 [1 - 0.8356449188]

= $100 0.1643550812

= $608.44

Loan's effective annual rate

= (1 + r)¹² - 1

= (1 + 0.005)¹² - 1

= (1.005)¹² - 1

= 1.0617 - 1

= 0.0617 or 6.17%