Amortizing a loan P over n periods at i% interest / period, the payment per period is given by:
[tex]A= P(i(1+i)^n)/((1+i)^n-1)[/tex]
In given situation,
P=20000
period=month
i=10%/12
n=5*12=60 months
A. monthly payment amount
[tex]A= P(i(1+i)^n)/((1+i)^n-1)[/tex]
[tex]= 20000(.1/12(1+.1/12)^60)/((1+.1/12)^60-1)[/tex]
[tex]=424.98[/tex] to the nearest cent
B. EAR (effective annual rate)
the APR is 10%, but compounded monthly.
So
EAR=(1+i/12)^12-1
=(1+0.1/12)^12-1
=0.104713
=10.4713% (effective annual rate)
