2. You are borrowing $20,800 to buy a car. The terms of the loan call for monthl

Question

2. You are borrowing $20,800 to buy a car. The terms of the loan call for monthly payments for 5 years at 6 percent interest. What is the amount of each payment?

3. Kingston Development Corp. purchased a piece of property for $3.79 million. The firm paid a down payment of 10 percent in cash and financed the balance. The loan terms require monthly payments for 20 years at an annual percentage rate of 6.50 percent, compounded monthly. What is the amount of each mortgage payment?

4. Explain the difference between the effective annual rate (EAR) and the annual percentage rate (APR). Of the two, which one has the greater importance and why?

Explanation / Answer

2.Present value monthly factors for 60 months @0.5%=1/(1.005)1+1/(1.005)2...............+1/(1.005)60=51.7256

the amount of each payment( monthly)=$20,800/51.7256=$402.12

3.

Down payment=$3,790,000*10%=$379,000

balance of loan to be repaid=$3,790,000-$379,000=$3,411,000

Present value monthly factors for 240 months @0.54%=1/(1.0054)1+1/(1.0054)2...............+1/(1.0054)240=134.3371

the amount of each mortgage payment=$3,411,000/134.3371=$25,391.35

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