In: Accounting
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.
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.
%
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%