Answer: You will borrow (1 - 0.1) × $280,000 = $252,000 and this is the PV. For the annual plan, the PVIFA using r = 8.23% and n = 30 periods is 11.01782.
The annual annuity payment is: PMT = = = $22,872.03.
The PVIFA using = 0.68583% and n = 30 × 12 = 360 periods is 133.35804. The monthly annuity payment is: PMT = = = $1,889.65.
Multiplying this payment by 12 gives $22,675.80. This total for 12 months (or one year) is less than the annual payment of $22,872.03. Thus, by increasing the number of payments per year, you reduce your total cash outflows. Using the EAR formula, we get an effective cost of 8.55% for the monthly plan. Since the effective cost is the same as the 8.23% APR, the effective cost under the annual plan is 8.23%. Thus, under the monthly plan you decrease you cash outflows but increase your effective cost of borrowing.