Question

You want to buy a car, and a bank will lend you $15000. The loan will be fully amortized over 5 years(60 months), and the nominal interest rate will be 12% with interest paid monthly.
a) What will be the monthly loan payment?
b) What will be the loan’s EAR?

Answer 1

Answer:

a) $ 333.67

b) 12.6825

Explanation:

a) The 333.67 amount is the payment per month without interest and of course interest will differ from month to month as the loan is amortized monthly. to get the payment using financial calculator its N= 60,  I/YR = 12%/12=0.01, 15000=PV, FV=O THEN COMPUTE PMT

OR use the formula pmt= PV/1-1/(1+rate)^time/rate

b) To get EAR = (1+ rate/ compounding)^compounding-1

(1+0.12/12)^12-1