Question

Left bank has a standing rate of 8.5% APR for all bank loans requires monthly payments what is the monthly payment if a loan is A) 135,000 for five years B)255,000 for 10 years C) 1250000 for 24 years? what is the effective annual rate for each of these loans
Save Homework: Chapter 15 Homework Score: 0 of 1 pt 2 of 10 compte HW Score: 0%, 0 of 10 pts P15-3 (similar to) Question Help
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Answer #1

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%

If there is any doubt please ask in comments

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