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Homework answers / question archive / You just purchased a condo for $1,800,000 and paid 20% down payment
You just purchased a condo for $1,800,000 and paid 20% down payment. The remaining amount is financed through a loan with maturity of 20 years and monthly payments of $10,800 payable at the end of each month.
Calculate the APR
Calculate the Effective Annual Rate (EAR)
We can calculate the APR by using the following formula in excel:-
=rate(nper,pmt,-pv,fv)
Here,
Rate = APR (monthly)
Nper = 20*12 = 240 periods (monthly)
Pmt = $10,800
PV = $1,800,000*(1-20%) = $1,440,000
FV = $0
Substituting the values in formula:
=rate(240,10800,-1440000,0)
= 0.55%
APR = Rate * 12
= 0.55% * 12
= 6.58%
Computation of the effective annual rate (EAR):-
EAR = (1+APR/n)^n-1
= (1+6.58%/12)^12-1
= 1.0678 - 1
= 6.78%
