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Amortization schedule with periodic payments. Moulton Motors is advertising the following deal on a used Honda​...

Amortization schedule with periodic payments. Moulton Motors is advertising the following deal on a used Honda​ Accord: ​ "Monthly payments of $238.11 for the next 54 months and this beauty can be​ yours!" The sticker price of the car is ​$9,500. 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 238.11
APR r 14.00%
Number of years n 4.50 or 4.5 x 12 = 54
Monthly frequency 12.00
Loan amount PV 9500.00

We need to solve the following equation to arrive at the required APR

So the APR is 13.99%

Due to compounding effect the EAR will be greater than the APR:

Amortization schedule is as follows:

Opening balance = previous year's closing balance
Closing balance = Opening balance+Loan-Principal repayment
PMT is calculated as per the above formula
Interest = 0.139990817719448 /12 x opening balance
Principal repayment = PMT - Interest


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