Problem 6-20 Calculating Loan Payments [LO2, 4] You want to buy a new sports cou

Question

Problem 6-20 Calculating Loan Payments [LO2, 4]

You want to buy a new sports coupe for $73,500, and the finance office at the dealership has quoted you a 5.5 percent APR loan for 72 months to buy the car.

What will your monthly payments be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is the effective annual rate on this loan? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

You want to buy a new sports coupe for $73,500, and the finance office at the dealership has quoted you a 5.5 percent APR loan for 72 months to buy the car.

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

PMT = ? (indicates monthly payment amount)

PV = 73500 (indicates the amount of loan)

Rate = 5.5%12 (indicates the monthly rate)

FV = 0 (indicates the face value, not relevant in this question)

Nper = 6*12 = 72 (indicates the period over which the payments have to be made)

Monthly Payments = PMT(Rate,Nper,PV,FV) = PMT(5.5%/12,72,-73500,0) = 1200.83

Answer for Part A is 1200.83

Part B:

Effective Rate of Interest = (1+5.5%/12)^12 -1 = 5.64%

Answer for Part B is 5.64%.

Thanks.

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