Question

After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $19,300 price, but financing through the dealer is no bargain. He has $3,000 cash for a down payment, so he needs an $16,300 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $16,300 for a period of four years at an add-on interest rate of 10 percent.1. What is the total interest on Richard's loan? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

2. What is the total cost of the car? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
3. What is the monthly payment? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
4. What is the annual percentage rate (APR)? (Do not round your intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Step-by-step explanation:

Price of car = $19300

Down payment = $3000

Loan. Amount = $16300

Number of years = 4

Rate = 10%

1. What is the total interest on Richard's loan?

Simple interest = PRT/100

where p = principal = 16300

R = rate = 10%

T = Time = 4 years

Simple interest= (16300 × 10 × 4)/100

= $6520

2. What is the total cost of the car?

Total cost = Price + Interest

= 19300 + 6520

= $25820

3. What is the monthly payment?

This will be calculated as:

= (Loan amount + Interest)/Number of months

= (16300 + 6520)/4 years

= (16300 + 6520)/48

= 22820/48

= $475.41667

4. What is the annual percentage rate (APR)?

APR = (2×n×l)/P(N+1)

where,

n = number of payments period in a year.

I = Interest

P= Loan amount

N = Total number of payments

APR = (2×12×6520)/16300(48+1)

= 156480/16300(49)

= 156480/798700

= 0.1959

= 19.59%