Question

Leo decides to buy a car for $9600 with a 5-year finance plan that offers 0% financing for the first yearThe APR after that will be 3.9%. Interest is compounded monthly. How much will his monthly payment be if he makes payments of $150 per month during the first year?

Answer 1

$175.77

Explanation:

For the first year: $150*12= $1,800

$9,600-1,800= $7,800

Use the Monthly Payment Formula: M=(Pr(1+r)^n) / ((1+r)^n -1)

(7,800*(1+.039/12)^48) / (1+(.039/12)^48 -1)

=175.77

The answer above is incorrect lol

Answer 2

The monthly payment of Leo for the car loan for next four years is $759.5

Explanation:

Given as :

The loan of the car = $9600

The rate of interest for first year = 0%

The next 4 years, the rate of interest = 3.9% compounded monthly

The amount paid for first year = $150 per months

I.e The amount paid for first month = $150 × 12 = $1800

Let The amount for next fours years = $A

Now, According to question

∵ For the first year $1800 is paid

So, The rest amount of loan = $9600 - $1800 = $7800

From compound interest

Amount = principal ×
`(1+(\textrm rate)/(12* 100))^(\textrm 12* time)`

Or, $A = $7800 ×
`(1+(\textrm 3.9)/(12* 100))^(\textrm 12* 4)`

Or, A = $7800 ×
`(1.00325)^(48)`

Or, A = $7800 × 1.1685

∴ A = $9114.3

So, The amount paid after 4 years = A = $9114.3

Or,The amount paid after 4 years as per months =
`(9114.3)/(12)`

Or,The amount paid after 4 years as per months = $759.5

Hence The monthly payment of Leo for the car loan for next four years is $759.5 Answer