You want to buy a new sports coupe for $96,069, and the finance office at the dealership has quoted you a 5

Finance Oct 19, 2020

You want to buy a new sports coupe for $96,069, and the finance office at the dealership has quoted you a 5.4 percent APR loan for 77 months to buy the car. What is the effective annual rate on this loan? (round 2 decimal places)

Expert Solution

Computation of Effective Annual Rate on this Loan:

Effective Annual Rate = ((1+(i/n))^n)-1

Here,

i = Interest Rate or APR = 5.4%

n = Number of Compounding Periods = 12 months

Effective Annual Rate = ((1+(5.4%/12))^12)-1

= ((1+0.45%)^12)-1

= 1.0554-1

Effective Annual Rate = 0.0554 or 5.54%

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