ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 7, Problem 88P
To determine

(a)

The annual percentage rate.

Expert Solution
Check Mark

Answer to Problem 88P

The annual percentage rate is 9.4%.

Explanation of Solution

Given:

The loan amount is $18000.

The time period is 60 months.

The interest rate is 9%.

Concept used:

Write the expression for loan origination fee of 2 points.

F=2%×A ......(I)

Here, the loan origination fee is F and the loan amount is A.

Write the expression for the interest paid.

I=i×A ......(II)

Here, the interest paid is I and the interest rate is i.

Write the expression for the total cost of the loan.

L=F+I ......(III)

Here, the total cost of the loan is F.

Write the expression for the Annual Percentage Rate.

APR=i×LI ......(IV)

Here, the annual percentage rate is APR.

Calculations:

Calculate the loan origination fee of 2 points.

Substitute $18000 for A in Equation (I).

F=2%×$18000=2100×$18000=$360

Calculate the interest paid in 5 years.

Substitute $18000 for A and 9% for i in Equation (II).

I=9%×$18000=9100×$18000=$8100

Calculate the total cost of the loan.

Substitute $8100 for I and $360 for F in Equation (III).

L=$8100+$360=$8460

Calculate the Annual Percentage Rate.

Substitute $8100 for I, 9% for i and $8460 for L in Equation (IV).

APR=9%×$8460$8100=9100×$8460$8100=9.4%.

Conclusion:

Thus, the value of annual percentage rate is 9.4%.

To determine

(b)

The annual percentage rate.

Expert Solution
Check Mark

Answer to Problem 88P

The annual percentage rate is 23.5%.

Explanation of Solution

Given:

The loan amount is $18000.

The time period is 24 months.

The interest rate is 9%.

Concept used:

Write the expression for the interest rate.

i=I′A×100 ......(V)

Here, the interest for each year is I′.

Calculations:

Calculate the loan origination fee of 2 points.

Substitute $18000 for A in Equation (I).

F=2%×$18000=2100×$18000=$360

Calculate the interest paid in 2 years.

Substitute $18000 for A and 9% for i in Equation (II).

I=9%×$18000=9100×$18000=$8100

Calculate the total cost of the loan.

Substitute $8100 for I and $360 for F in Equation (III).

L=$8100+$360=$8460

Calculate the interest for each year.

I′=$84602=$4230

The interest for each year is $4230.

Calculate the annual percentage rate.

Calculate the interest percentage for each year.

Substitute $4230 for I′ and $18000 for A in Equation (V).

i=$423018000×100=23.5%.

Conclusion:

Thus, the value of annual percentage rate is 23.5%.

To determine

(c)

The graph for the effective interest rate with time to sell the car and pay-off the loan.

Expert Solution
Check Mark

Explanation of Solution

The graph of effective interest rate with time to sell car and pay-off the loan is shown below.

ENGR.ECONOMIC ANALYSIS, Chapter 7, Problem 88P

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Chapter 7 Solutions

ENGR.ECONOMIC ANALYSIS

Ch. 7 - Prob. 1QTCCh. 7 - Prob. 2QTCCh. 7 - Prob. 3QTCCh. 7 - Prob. 4QTCCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6P
Ch. 7 - Prob. 7PCh. 7 - Prob. 8PCh. 7 - Prob. 9PCh. 7 - Prob. 10PCh. 7 - Prob. 11PCh. 7 - Prob. 12PCh. 7 - Prob. 13PCh. 7 - Prob. 14PCh. 7 - Prob. 15PCh. 7 - Prob. 16PCh. 7 - Prob. 17PCh. 7 - Prob. 18PCh. 7 - Prob. 19PCh. 7 - Prob. 20PCh. 7 - Prob. 21PCh. 7 - Prob. 22PCh. 7 - Prob. 23PCh. 7 - Prob. 24PCh. 7 - Prob. 25PCh. 7 - Prob. 27PCh. 7 - Prob. 28PCh. 7 - Prob. 29PCh. 7 - Prob. 30PCh. 7 - Prob. 31PCh. 7 - Prob. 32PCh. 7 - Prob. 33PCh. 7 - Prob. 34PCh. 7 - Prob. 35PCh. 7 - Prob. 36PCh. 7 - Prob. 37PCh. 7 - Prob. 38PCh. 7 - Prob. 39PCh. 7 - Prob. 40PCh. 7 - Prob. 41PCh. 7 - Prob. 42PCh. 7 - Prob. 43PCh. 7 - Prob. 44PCh. 7 - Prob. 45PCh. 7 - Prob. 46PCh. 7 - Prob. 47PCh. 7 - Prob. 49PCh. 7 - Prob. 50PCh. 7 - Prob. 51PCh. 7 - Prob. 52PCh. 7 - Prob. 53PCh. 7 - Prob. 54PCh. 7 - Prob. 55PCh. 7 - Prob. 56PCh. 7 - Prob. 57PCh. 7 - Prob. 58PCh. 7 - Prob. 59PCh. 7 - Prob. 60PCh. 7 - Prob. 61PCh. 7 - Prob. 62PCh. 7 - Prob. 63PCh. 7 - Prob. 64PCh. 7 - Prob. 65PCh. 7 - Prob. 66PCh. 7 - Prob. 67PCh. 7 - Prob. 68PCh. 7 - Prob. 69PCh. 7 - Prob. 70PCh. 7 - Prob. 71PCh. 7 - Prob. 72PCh. 7 - Prob. 73PCh. 7 - Prob. 74PCh. 7 - Prob. 75PCh. 7 - Prob. 76PCh. 7 - Prob. 77PCh. 7 - Prob. 78PCh. 7 - Prob. 79PCh. 7 - Prob. 80PCh. 7 - Prob. 81PCh. 7 - Prob. 82PCh. 7 - Prob. 83PCh. 7 - Prob. 84PCh. 7 - Prob. 85PCh. 7 - Prob. 87PCh. 7 - Prob. 88PCh. 7 - Prob. 89P
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