Question
1.Suppose that you just purchased a new car worth$38,000 intoday's dollars. Suppose also that you borrowed$38,000 from a local bank at4.0% APR compounded monthly over
1.Suppose that you just purchased a new car worth$38,000 intoday's dollars. Suppose also that you borrowed$38,000 from a local bank at4.0% APR compounded monthly over five years. The bank calculated your monthly payment at$699.83. Assume that average general inflation will run at0.13% per month over the next five years.
(a) Determine the monthlyinflation-free interest rate (i') for the bank.
(b) What equal monthly payments(in terms of constant dollars over the next fiveyears) are equivalent to the series of actual payments to be made over the life of theloan?
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