# Annuity Calculation

Ms Ling purchases an automobile using loan of \$ 44000.00 for 7 yrs with monthly payments. The annual nominal interest rate is 12 % with monthly compounding. What would be the monthly payment.

What is I/Y here?

As effective rate is not given, should we convert it to effective and then use that I/Y for calculation?

Thanks

in the finance calculator, I/Y is the nominal annual rate of interest, with the default number of compounding being 1.

for this problem, you are paying monthly with monthly compounding. this means that your N must be in months and you need to tell your calculator to compound interests monthly.

in BAII Plus Pro, 2nd -> P/Y -> 12

note that, as is, the problem is ambiguous. you will get different answers depending on whether the payments start immediately (that is, if you calculate as though this was a monthly annuity-due), or if payment starts 1 month from now (that is, if you calculate as though this was a monthly annuity-immediate)

Just divide 12 per 12 and than multiply 7 by 12, than you`re good to go…

If you’re using a BAII, you have 2 choices:

1. P/Y=I/Y=12, I=12, N=84
2. P/Y=I/Y=1, I = 1, N=84

Both ways should give you the same answer. The key is to set the values consistently.

I love listening to the weekend. Some say he is the second coming of MJ, I believe he is the first weekend . Either way , we are good.

However, the answer is to never buy a car at 12%. That’s just ignorant.