Answer:
Monthly Payment is $1602.37
Effective interest rate is 5.33%
Explanation:
a.
The monthly payment made includes the interest and principal payment as well.
Monthly payment can be calculated using following formula
Monthly Payment = [Present value of loan x r] / [{1 - (1 + r)-n}]
Monthly Payment = [$84,500 x (0.052/12)] / [1 - (1 + 0.052/12)-60]
Monthly Payment = [$366.17 / 0.2285]
Monthly Payment = $1,602.37
b.
The Effective interest rate is the actual interest rate that are being charged on loan after incorporating the compounding effect.
Use following formula to calculate the effective Annual rate
EAR = [1 + (i/n)]^n - 1
EAR = [ 1 + (5.2% / 12]^12 - 1
EAR = [1.0043]^12 - 1
EAR = 1.0533 - 1
EAR = 0.0533
EAR = 5.33%
a. Monthly Payment is $1602.37
b. Effective interest rate is 5.33%
a.
The monthly payment involved the interest and principal payment.
Monthly Payment = [Present value of loan × r] ÷ [{1 - (1 + r)-n}]
= [$84,500 × (0.052 ÷ 12)] / [1 - (1 + 0.052÷12)-60]
= [$366.17 ÷ 0.2285]
= $1,602.37
b.
The Effective interest rate is the actual interest rate that is being charged on a loan after taking the compounding effect.
EAR = [1 + (i ÷ n)]^n - 1
= [ 1 + (5.2% ÷ 12]^12 - 1
= [1.0043]^12 - 1
= 1.0533 - 1
= 0.0533
= 5.33%
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