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Q: financi ( Answered,   0 Comments )
Subject: financi
Category: Miscellaneous
Asked by: bacon1262-ga
List Price: $10.00
Posted: 02 Apr 2006 20:03 PDT
Expires: 02 May 2006 20:03 PDT
Question ID: 714814
Loan Payments. If you take out an $8,000 car loan that calls for 48
monthly payments at an APR of 10 percent, what is your monthly
payment? What is the effective annual interest rate onthe loan?
Subject: Re: financi
Answered By: livioflores-ga on 02 Apr 2006 22:21 PDT
Hi bacon1262!!

Let me denote payment as PMT, then the formula that relates rate (r),
principal (L), amount of payments (N), and PMT is:

PMT = r*L / (1-(1+r)^-N)

In this case we have:
r = 0.10/12 = 0.008333333

PMT = 0.008333333 * 8000 / (1-(1.008333333)^-48) =
    = 66.66666667 / (1-0.671432) =
    = 66.66666667 / 0.328568 =
    = 202.90

The monthly payment is $202.90 

For references on the above formula and its derivation visit the following page:
"Loan or Investment Formulas":

-Effective Annual Interest Rate:
The monthly interest rate is r = 0.008333 = 0.8333%; therefore, the
effective annual interest rate on the loan is:
(1+r)^12 ? 1 = (1.008333)^12 ? 1 = 0.1047 = 10.47%

For the above formula and definitions related visit
"Annual Percentage Rate - APR":

"Effective Annual Interest Rate":

Search strategy:
My own knowledge and the following keywords at
"loan payment" formula
APR rate
"effective annual interest rate"

I hope this helps you. Feel free to use the clarification feature if
you find something unclear in the answer.

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