Question

Fast Eddie’s Used Cars will sell you a 1989 Mazda Miata for $5,000 with no money down. You agree to make weekly payments for 2 years, beginning one week after you buy the car. The stated rate on the loan is 13%. How much is each payment? (A) $99.65 (B) $42.96 (C) $54.66 (D) $68.19 (E) $75.90

Answer 1

C

Step-by-step explanation:

We calculate the amount of each payment (constant payments; the same amount each period) with the formula attached: PV is present value, i is the interest rate and n is the number of periods.

The problem gives the following information:

PV= $5,000 (The amount you would pay if you had all the money today)

i= 13% (This rate is normally an annual rate, then we must convert it into a periodic (weekly) rate in order to calculate each weekly payment)

n= 1 year have approximately 52 weeks, 2 year have 104 weeks.

To transform the interest rate we use this formula:

Weekly rate= ((1+annual rate)^(1/# periods))-1

Weekly rate= ((1+0,13)^(1/52))-1

Weekly rate= 0,00235= 0.23%

Then we replace the values in the formula attached:

PV= $5,000

i=0,235%

n=104

A= $54,30 (It is almost equal to option C, maybe you must use more decimal places to obtain exactly $54,66)

Each payment will be approximately $54,66 each week for 2 years.