Question

MR. JONES DECIDES TO PURCHASE A CAR FOR $10,000. THE DEALER OFFERS TO FINANCE THE CAR AT 8% INTEREST. THE LOAN WILL WILL BE PAID OVER 4 YEARS WITH PAYMENTS MADE MONTHLY. WHAT IS THE PAYMENT AMOUNT THAT MR. JONES WOULD BE EXPECTED TO PAY

Answer 1

Expected monthly payment is $244.13

Step-by-step explanation:

We proceed as follows;

The amount financed is the PV of the 48. monthly installments to be paid

against it, when discounted at the rate of 8%/12.

Hence, using the formula for finding PV of an annuity [monthly installments

constitute an annuity], we have the equality:

10000 = PMT*((1+0.08/12)^48-1)/((0.08/12)*(1+0.08/2)^48),

where PMT is the monthly payment to be made.

So, PMT = 10000*(0.08/12) * (1+0.08/12)^48/((1+0.08/12)^48-1) = $244.13