Homework Answers
Answer:
Amount borrowed = $120,000
Monthly payment = $1,100
Lump sum payment = $15,000
Time period = 20 years or 240 months
Calculation of monthly interest rate using financial calculator:
N = 240
PV = 120000
PMT = -1100
FV = -15000
I = 0.79%
Monthly interest rate = 0.79%
Annual interest rate, APR = 12 * Monthly interest rate
Annual interest rate, APR = 12 * 0.79%
Annual interest rate, APR = 9.48%
Effective annual rate, EAR = (1 + Monthly interest rate)^12 -
1
Effective annual rate, EAR = (1 + 0.0079)^12 - 1
Effective annual rate, EAR = 1.0990 - 1
Effective annual rate, EAR = 0.0990 or 9.90%
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