You want to buy a new sports coupe for 75,500, and the finance office at the dea

Question

You want to buy a new sports coupe for 75,500, and the finance office at the dealership has quoted you an APR of 5.7 percent for a 60 month loan to buy the car. a. What will your monthly payments be? (Do not round Intermedlate calculatlons and round your answer to 2 declmal places, e.g., 32.16.) b. What Is the effective annual rate on this loan? (Do not round Intermedlate celculetions. Enter your answer es a percent rounded to 2 declmal places, e.g. 32.16.) a. Monthly payment b. Effective annual rate

Explanation / Answer

a)

Rate = 0.057 / 12 = 0.00475 or 0.475%

Present value of monthly payments = Monthly payments * [ 1 - 1 / ( 1 + r)n] / r

75,500 = Monthly payments * [ 1 - 1 / ( 1 + 0.00475)60] / 0.00475

75,500 = Monthly payments * 52.100665

Monthly payments = $1,449.12

b)

Effective interest rate = ( 1 + APR/n)n - 1

Effective interest rate = ( 1 + 0.057/12)12 - 1

Effective interest rate = 0.0585 or 5.85%

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