Question

In: Accounting

You want to buy a car, and a local bank will lend you $35,000. The loan...

You want to buy a car, and a local bank will lend you $35,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 4% with interest paid monthly.

  1. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent.

    $  

  2. What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places.

    %

Solutions

Expert Solution

a)Monthly rate= 4/12 = .33333%

Number of months = 5 years or 60 months

Monthly loan payment = Loan amount /PVA.33333%,60

                = 35000 / 54.29912

               = $ 644.58 per month

Monthly payment = 644.58

working:

Find PVA or present value annuity factor using financial calculator where i = .33333% ,n= 60 and PMT= 1 or using the formula :[1/(1+i)^1 +1/(1+i)^2+1/(1+i)^3 +1/(1+i)^4+.......+1/(1+i)^58 +1/(1+i)^59+1/(1+i)^60]

b)EAR =[1+APR/n]^n -1

where n = number of times interest is compounded .In the given case ,interest is compounded monthly so n=12

EAR =[1+.04/12]^12 -1

      =[1+.0033333]^12 -1

      =[1.0033333]^12    -1

      = 1.0407-1

      = .0407 OR 4.07%


Related Solutions

You want to buy a car, and a local bank will lend you $35,000. The loan...
You want to buy a car, and a local bank will lend you $35,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 7% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places. Monthly loan payment: $   EAR: %
You want to buy a car, and a local bank will lend you $10,000.The loan...
You want to buy a car, and a local bank will lend you $10,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 8% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.
You want to buy a car, and a local bank will lend you $25,000.The loan...
You want to buy a car, and a local bank will lend you $25,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 5% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.Monthly loan payment: $EAR: %Find the following...
You want to buy a car, and a local bank will lend you $15,000. The loan...
You want to buy a car, and a local bank will lend you $15,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 8% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places. Monthly loan payment: $ EAR: %
You want to buy a car, and a local bank will lend you $20,000.The loan...
You want to buy a car, and a local bank will lend you $20,000. The loan will be paid off over 5 years with equal monthly payment.a) If the nominal interest rate of the loan is quoted as 6% with monthly compounding assumption, what is your monthly payment?b)What is the effective annual rate of Part(1)?c) If the nominal interest rate of the loan is quoted as 6% with semiannual compounding assumption, what is your monthly payment?
You want to buy a car, and a local bank will lend you $40,000. The loan...
You want to buy a car, and a local bank will lend you $40,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 10% with interest paid monthly. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. $   What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places. %
You want to buy a car, and a local bank will lend you $30,000. The loan...
You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 5% with interest paid monthly. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. $   What will be the loan's EAR? Do not round intermediate steps. Round your answer to two decimal places. %
You want to buy a car, and a local bank will lend you $20,000. The loan...
You want to buy a car, and a local bank will lend you $20,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 12%, with interest paid monthly. a)What would be the monthly loan payment? b)What would be the loan’s EAR? c) If the nominal interest rate of the loan is quoted as 12% with semiannual compounding assumption, what is your monthly payment?
You want to buy a car, and a local bank will lend you $30,000. The loan...
You want to buy a car, and a local bank will lend you $30,000. The loan would be fully amortized over 5 years (60 months), and the nominal interest rate would be 6%, with interest paid monthly. What is the monthly loan payment? What is the loan's EFF%?
LOAN AMORTIZATION You want to buy a car, and a local bank will lend you $30,000....
LOAN AMORTIZATION You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 7 years (84 months), and the nominal interest rate will be 6% with interest paid monthly. What will be the monthly loan payment? Round to TWO decimal places.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT