Question

You want to buy a new car for $74,300, and the finance office at the dealership has quoted you a loan with an APR of 6.7% for 72 months to buy the car. What will your monthly payment be? What is the effective annual rate on this loan? Please show all answers and calculations.

Answer 1

Annuity Payment = r(PV)/[1 - (1 + r)^-n]

Annuity Payment = (0.067/12)(74,300)/[1 - (1 + 0.067/12)^-72]

Annuity Payment = $1,256.07

So,

Monthly Payment = $1,256.07

EAR = (1 + 0.067/12)¹² - 1

EAR = 6.91%

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