Solve using equation, not a financial calculator. You want to buy a car, and a local bank will lend you $20,000. The loan would be fully
amortized over 5 years (60 months), and the nominal interest rate would be 12%, with
interest paid monthly. What is the monthly loan payment? What is the loan’s EFF%?
Number of periods (n) = 60
Present value of loan (PV) = $20,000
Nominal interest rate = 12% per annum
Monthly interest rate (r) = 12% / 12 = 1% per month.
Using the annuity formula,
PV= PMT* 1-(1+r)^-n/r
PMT = PV*r/1-(1+r)^-n
= 20,000*.01/1-(1+.01)^-60
PMT (The monthly pay) = 444.88
EFF = (1 + APR/12)^12 - 1
= (1 + .12/12)^12 - 1
EFF = 0.1268
Solve using equation, not a financial calculator. You want to buy a car, and a local...
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