Question

You want to buy a new sports coupe for $92,500, and the finance office at the dealership has quoted you an APR of 74 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 celculations. Enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.)
a. Monthly payment
b. Effective annual rate

Answer 1

a) we must first determine the effective interest rate

effective monthly interest rate = APR / 12 = 7.4% / 12 = 0.617%

monthly payment = present value x annuity factor

present value = $92,500

PV annuity factor, 0.617%, 60 periods = 50.024

monthly payment = $92,500 / 50.024 = $1,849.12

b) effective annual rate = (1 + 7.4%/12)¹² - 1 = 0.076562 = 7.66%