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January 21st, 2013, 02:22 PM  #1 
Senior Member Joined: Sep 2011 From: New York, NY Posts: 333 Thanks: 0  Car Payments
Hi, I am stuck on part b of this engineering economics problem. I think I got part a correct. Can anyone give me a hand? Kara borrows $10,000 to purchase a car she must repay the loan in 48 equal endofperiod payments. Interest is calculated at 1.25% per month. Determine the following: a) What are the nominal annual rate and the effective annual rate? Nominal annual rate: where i = periodic interest rate and m is the number of periods effective annual rate: b) What's the amount of Kara's monthly payment? (this is the part I need help with) 
January 21st, 2013, 10:15 PM  #2 
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,597 Thanks: 1039  Re: Car Payments
10000 * .0125 / (1  1/1.0125^4 = 278.30748... Btw, the lender will tell you while flashing an even row of generous teeth that the rate is 15% annual compounded monthly, but will not add "which is really 16.08% annual" 
January 22nd, 2013, 07:05 AM  #3 
Senior Member Joined: Sep 2011 From: New York, NY Posts: 333 Thanks: 0  Re: Car Payments
Thank you for the help! Two questions. 1) Is there any chance that "annual" should be looked at as the term of the loan, and I should have used 48 periods instead of 12? 2) Where did you get that formula? 
January 22nd, 2013, 08:47 AM  #4  
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,597 Thanks: 1039  Re: Car Payments Quote:
2) It's the standard "loan payment" formula Go here: http://www.google.ca/#hl=en&sugexp=les% ... 24&bih=571  
January 22nd, 2013, 09:15 AM  #5 
Senior Member Joined: Sep 2011 From: New York, NY Posts: 333 Thanks: 0  Re: Car Payments
Got it. I was confused by something the prof said. We were given the formula Which gives 
January 22nd, 2013, 09:51 AM  #6  
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,597 Thanks: 1039  Re: Car Payments Quote:
10,000(1+0.0125)^48 = 18153.548... Has NOTHING to do with loan payments.  
January 22nd, 2013, 11:05 AM  #7 
Senior Member Joined: Sep 2011 From: New York, NY Posts: 333 Thanks: 0  Re: Car Payments
awesome. I can't thank you enough. You really helped me understand this.


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