Question

you have just purchased a new car! you made a down payment of $5,000 and financed the balance. According to the purchasing agreement, you must pay $600/month for four years, beginning one month from today. the credit agreement is based on an annual interest rate of 12%. what was the cost of the car

Answer 1

Cost of car=$27,784

Step-by-step explanation:

Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.

The monthly equal installment is calculated as follows:

Monthly equal installment= Loan amount/Monthly annuity factor

Loan amount =Balance payment= ?

Monthly annuity factor =

=( 1-(1+r)^(-n))/r

r- Monthly interest rate (r)

= 12/12= 1%

n- Number of months ( n) = 12× 4 = 48

Annuity factor

= ( 1- (1.01)^(-48)/0.01= 37.97

Total payments= 600 × 37.973

= $22,784.37

Cost of car = Down payment and the present value of balance

= 5,000+ 22,784.3=$27,784