Solution :- Interest Rate per month = 8.5% / 12 = 0.70833%
(a)
Amount Financed = $135,000
Total Monthly Payments = 5 * 12 = 60
Monthly Payment = Amount Financed / PVAF ( r , n )
= $135,000 / PVAF ( 0.70833% , 60 )
= $135,000 / 48.7412
= $2,769.73
(b)
Amount Financed = $255,000
Total Monthly Payments = 10 * 12 = 120
Monthly Payment = Amount Financed / PVAF ( r , n )
= $255,000 / PVAF ( 0.70833% , 120 )
= $255,000 / 80.6545
= $3,161.63
(c)
Amount Financed = $1,250,000
Total Monthly Payments = 24 * 12 = 288
Monthly Payment = Amount Financed / PVAF ( r , n )
= $1,250,000 / PVAF ( 0.70833% , 288 )
= $1,250,000 / 122.687
= $10,188.53
(d)
Effective Annual Rate = ( 1 + 0.00708333 )12 - 1
= 1.0884 - 1
= 0.0884
= 8.84%
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