Answer: a) $1,775.44
b. 7.34%
Explanation:
a)What we are dealing with here is an annuity.
And to find the monthly payments, we can use the Present Value of an annuity formula because we already have the present value of the Annuity.
Formula is,
PV = PMT ( 1 - (1 + r) ^ -n)/ r
Where PV is the present value
PMT is the payment
r is the APR
n is the number of periods.
Because n is in months, APR must be in months too so,
= 7.1%/12
= 0.59%
Calculating therefore would be,
89,500 = PMT (1 - (1 + 0.59%) ^ - 60)/ 0.59%
89,500 = PMT (50.41)
PMT = 89,500/50.41
PMT = 1775.44138068
PMT = $1,775.44
The monthly payment is $1,775.44
b) Effective annual rate on this loan = (1+APR/12)^12 -1
= (1+7.1%/12)^12 -1
= 7.34%
Effective annual rate on this loan is 7.34%
If you need any clarification do comment.
