Question

joey wants to buy $4,000 vehicle with 10% down for three years at 12% interest. What will his monthly payment be?

Answer 1

$119.57

Explanation:

We have to find present value of annuity to find the monthly payment.

Given,

Present value, PV = $4,000

Down payment = $4,000 × 10% = $400

Remaining present value = $(4,000 - 400) = $3,600

Interest, i = 12% = 0.12

As we need monthly payment, the interest rate will be monthly = 0.12/12 = 0.01.

Number of period, n = 3

monthly payment, m = 12

We know,

Present value of annuity = PMT ×
`(1 - (1 + (i)/(m))^(-n*m) )/((i)/(m) )`

$3,600 = PMT ×
`(1 - (1 + (0.12)/(12))^(-3*12) )/((0.12)/(12) )`

or, $3,600 = PMT × 30.1075

or, PMT = $119.57

Monthly payment should be $119.57