You want to buy a car and a local bank will lend you 25000 T

You want to buy a car, and a local bank will lend you $25,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 9% with interest paid monthly. What will be the monthly loan payment? Do not round intermediate steps. Round your answer to the nearest cent. $

What will be the loan\'s EAR? Do not round intermediate steps. Round your answer to two decimal places. %

Solution

a) Monthly payment $ 518.96 Monthly Interest rate = 9%/12 = 0.0075 Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.0075)^-60)/0.0075 i 0.0075 = 48.17337 n 60 Monthly Payment = Loan Amount/Present Value of annuity of 1 = $       25,000 / 48.17337 = $       518.96 b) EAR 9.38% EAR = ((1+(i/n))^n)-1 Where, = ((1+(0.09/12))^12)-1 i Annual nominal interest rate           0.09 = 9.38% n number of times compounding in a year 12