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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?

Solutions

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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