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Amortization schedule with periodic payments. Moulton Motors is advertising the following deal on a new Honda...
Amortization schedule with periodic payments. Moulton Motors is advertising the following deal on a new Honda Civic: "Monthly payments of $595.39 for the next 36 months and this beauty can be yours!" The sticker price of the car is $19,000. If you bought the car, what interest rate would you be paying in both APR and EAR terms? What is the amortization schedule of the first six payments?
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Expert Solution
We are given the following information:
| Payment | PMT | 595.39 |
| APR | r | To be calculated |
| Number of years | n | 3.00 |
| Monthly | frequency | 12.00 |
| Loan amount | PV | 19000.00 |
We need to solve the following equation to arrive at the
required APR
So the APR is 8%
Due to compounding effect the EAR will be greater than the APR:
Below is the amortization schedule:
Opening balance = previous year's closing balance
Closing balance = Opening balance+Loan-Principal repayment
PMT is calculated as per the above formula
Interest = 0.0799989180439545 /12 x opening balance
Principal repayment = PMT - Interest
Below is the chart of principal and interest payments:
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