Question

Background information: Car purchase cost: $25,000 Sum of Fuel and Maintenance Cost at End of Year 1: $2,000 Incremental increase in Fuel and Maintenance Cost after Year 1: $250/year (i.e. Fuel and Maintenance Cost at End of Year 2 is $2,250, End of Year 3 is $2,500, and so on). (a). (1 pt.) Suppose that you can get a car loan at 6.9% annual, compounded monthly, for a term of 60 months. You put down $5,000 and you finance the remaining $20,000. What is the monthly payment ($/month)

Answer 1

$395.08

Step-by-step explanation:

Given that

Annual loan = 6.9%

Compounded months = 60

Remaining finance = $20,000

The computation of monthly rate is as shown below :-

Monthly payment = Loan Amount ÷ Present value annuity factor of 0.575% at 60 months

= $20,000 ÷ 50.6225

= $395.08

Refer to the Present value annuity factor table.

The monthly rate

= 6.9% ÷ 12

= 0.575%