A loan is offered with monthly payments and a 8.50 percent APR. What\'s the loan

Question

A loan is offered with monthly payments and a 8.50 percent APR. What's the loan's effective annual rate (EAR)? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Effective annual rate You wish to buy a $9,500 dining room set. The furniture store offers you a 2-year loan with an APR of 7.2 percent. What are the monthly payments? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Payment per month How would the payment differ if you paid interest only? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Payment per month

Explanation / Answer

a.

EAR = (1+Rate/12)^12 - 1 = (1+8.5%/12)^12-1 =

8.84%

b.

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate/Frequency = 7.2/12 =

0.600000

FV = Future value =

$0

N = Total payment term x Frequency = 2 x 12 =

                          24

PV = Present value of Loan =

-$9,500.00

CPT > PMT = Monthly payment Payment =

$426.20

Alternate formula-based method:

PMT = Payment = |PV| x R% x (1+R%)^N / ((1+R%)^N - 1) =

$426.20

c.

Payment = 9500 x 7.2%/12 = $57.00

EAR = (1+Rate/12)^12 - 1 = (1+8.5%/12)^12-1 =

8.84%

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