Question

You want to buy a $21,000 car with a 2% annual interest rate compounded monthly for 60 months. What will your monthly payments be?

a) $372.56
b) $388.54
c) $402.56
d) $416.58

Answer 1

To calculate the monthly payment for a car loan, you use the annuity payment formula. None of the provided options for the monthly payment of a $21,000 car loan at 2% interest compounded monthly for 60 months are correct; the appropriate monthly payment should be approximately $368.33.

Step-by-step explanation:

To determine the monthly payments for a $21,000 car with a 2% annual interest rate compounded monthly for 60 months, we use the formula for the payment of an annuity.

Let P = principal amount ($21,000), r = monthly interest rate (annual rate / 12), n = total number of payments (60).

First, calculate the monthly interest rate:
r = 2% / 12
= 0.02 / 12
= 0.00166667

Then, use the annuity payment formula:
r/(1-(1+r)^-n) * P
Payment = 0.00166667/(1-(1+0.00166667)^-60) * $21,000

By calculating this, we find that the monthly payment comes out to approximately $368.33, which indicates that none of the given options are correct. There may have been a calculation error or a misprint in the question's options.