You want to buy a car, and a local bank will lend you $35,000. The loan...

Free

90.2K

Verified Solution

Question

Finance

You want to buy a car, and a local bank will lend you $35,000.The loan will be fully amortized over 5 years (60 months), and thenominal interest rate will be 7% with interest paid monthly. Whatwill be the monthly loan payment? What will be the loan's EAR? Donot round intermediate calculations. Round your answer for themonthly loan payment to the nearest cent and for EAR to two decimalplaces.
Monthly loan payment: $Â Â
EAR: %

Answer & Explanation Solved by verified expert

3.5 Ratings (298 Votes)

(A)

Loan amount (P)=Â Â 35000 Â Â

Years =Â Â 5Â Â
Total months (n)= 5*12=Â Â 60
Interest rate (r)= 7% or Â Â 0.07Â Â
Monthly Interest rate (i)= 0.07/12=Â Â 0.005833333333Â Â
Â Â Â Â Â
Equal monthly payments formula = P* i *((1+i)^n)/(((1+i)^n)-1)Â Â Â Â Â
=35000*0.00583333333*((1+0.0058333333)^60)/(((1+0.0058333333)^60)-1)Â Â Â Â Â
=693.0419489Â Â Â Â Â
So, equal monthly payment Amount isÂ Â $693.04Â Â
Â Â Â Â Â
(B)
Interest rate (r)= 7% or Â Â 0.07Â Â
no of compounding in a year (m)=Â Â 12Â Â
Effective Annual rate formula = (((1+ (r/m))^m)-1Â Â Â Â Â
=((1+(0.07/12))^12)-1Â Â Â Â Â
=0.07229008086Â Â or 7.23%Â Â

So, EAR of loan is 7.23%Â Â Â Â Â

Please thumbs up.

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member