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lana66690 [7]
2 years ago
12

You want to buy a new sports coupe for $74,500, and the finance office at the dealership has quoted you a loan with an APR of 6.

9 percent for 36 months to buy the car.
Required:
a. What will your monthly payments be?
b. What is the effective annual rate on this loan?
Business
1 answer:
Pachacha [2.7K]2 years ago
5 0

Answer:

a) Monthly payments = $22,969.38

b) Effective rate of return= 7.12%

Explanation:

<em>Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest. </em>

The monthly installment is computed as follows:  

Monthly installment= Loan amount/annuity factor

Loan amount; = 74,500

Annuity factor = (1 - (1+r)^(-n))/r

r -monthly rate of interest, n- number of months

r- 6.9%/12 = 0.575 % = 0.00575, n = 36 =

Annuity factor = ( 1- (1+00575)^(-36)/0.00575= 32.434

Monthly installment = Loan amount /annuity factor

=  74,500/32.434= 22,969.38

Required monthly payments = $22,969.38

Effective annual interest rate

Effective rate of return = ((1+r)^n- 1) × 100

where r - monthly interest rate- 6.9%/12 = 0.575%

n- number of months= 12 months

Effective rate of return - (1+00575)^(12) - 1× 100=  7.12%

Effective rate of return= 7.12%

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