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You are considering buying a new car. The sticker price is $37,750 and you have $5,000...

You are considering buying a new car. The sticker price is $37,750 and you have $5,000 to put toward a down payment. If you can negotiate a Flat interest rate of 7.5 percent and you wish to pay for the car over a 4-year period. What is the equivalent Annual Percentage Rate on this loan? 8.11% 14.35% 13.51% 15.69% 10.97%

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Answer #1

It is assumed that the loan is repaid in equal monthly payments.

Given, sticker price= $37,750

Down payment= $5,000

Therefore, loan amount (A)= $37,750-$5,000 = $32,750

Interest rate (R ) = 7.5% (flat), Period (Y) =4 years and number of payments (N)= 4*12= 48

Monthly payments= (A+A*R*Y)/N = (32750+32750*0.075*4)/48 = $886.98 (Rounded)

Annual Percentage Rate (APR)= 13.51% (Rounded)

The answer is the third option given.

Calculation using RATE function of Excel as follows:

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