You want to buy a new sports coupe for $68,500, and the finance office at the de

Question

You want to buy a new sports coupe for $68,500, and the finance office at the dealership has quoted you a loan with an APR of 5.9 percent for 60 months to buy the car.

What will your monthly payments be? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What is the effective annual rate on this loan? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

You want to buy a new sports coupe for $68,500, and the finance office at the dealership has quoted you a loan with an APR of 5.9 percent for 60 months to buy the car.

Explanation / Answer

Requirement 1:

Formula to Calculate EMI =

E = P x r x (1+ r)n / [(1 + r)n - 1]

E = Monthly Payment

P= Principal = $68,500

r = Rate of interest on Monthly Basis = 5.9 / 12 / 100 = 0.004916667

n = Number of Months = 60

E = 68,500 x 0.004916667 x (1 + 0.004916667)60 / [(1 + 0.004916667)60 - 1]

E = 1,321

So, Monthly payment will be $1,321

Requirement 2:

Formula to Calculate Effective Annual Rate= (1 + r /m)m - 1

r = Rate of Interest = 5.9%

m= Compounding Frequency = 12

EAR = (1 + 5.9 / 12)12 - 1

EAR = 6.06%

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