Question

Your friend wants to buy a car, and you plan to lend him/her $15,000. S/He will payoff the loan fully in 5 years and the interest rate will be 8%, to be paid monthly.

(i) What will be your friend’s monthly payment?

(ii) What will be the EAR (calculation may have to be carried out to four decimal points)?

Answer 1

Using financial calculator:

N	60	(5*12)
I/Y	0.6667%	(8%/12)
FV	0
PV	$                                  15,000.00
CPT PMT	$                                        304.15

Payment =$304.15

EAR monthly= ((1+(r/12))^12)-1

r=8% or 0.08
=((1+(0.08/12))^12)-1
=8.29995% or 8.3000% (4 decimals)