You want to buy a new sports coupe for $86,500, and the finance office at the de
ID: 2820192 • Letter: Y
Question
You want to buy a new sports coupe for $86,500, and the finance office at the dealership has quoted you an APR of 6.8 percent for a 60 month loan to buy the car.
a. What will your monthly payments be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. What is the effective annual rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
monthly payment=______
effective annual rate% =_____
Explanation / Answer
Using financial calculator BA II Plus - Input details:
#
I/Y = Rate/Frequency = 6.8/12 =
0.566667
FV = Future value =
$0
N = Total payment term x Frequency =
60
PV = Present value of Loan =
-$86,500.00
CPT > PMT = Payment = Monthly payment =
$1,704.65
Alternate formula-based method:
PMT = Payment = |PV| x R% x (1+R%)^N / ((1+R%)^N - 1)
$1,704.65
Effective Annual Rate = EAR = ( 1+ APR/12 )^12 - 1
EAR = (1+6.8%/12)^12-1
EAR = 7.02% or 7.02 percent
Using financial calculator BA II Plus - Input details:
#
I/Y = Rate/Frequency = 6.8/12 =
0.566667
FV = Future value =
$0
N = Total payment term x Frequency =
60
PV = Present value of Loan =
-$86,500.00
CPT > PMT = Payment = Monthly payment =
$1,704.65
Alternate formula-based method:
PMT = Payment = |PV| x R% x (1+R%)^N / ((1+R%)^N - 1)
$1,704.65
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