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In: Finance
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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