Dave Krug finances a new automobile by paying $5,600 cash and agreeing to make 2

Question

Dave Krug finances a new automobile by paying $5,600 cash and agreeing to make 20 monthly payments of $520 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round PVA factor to 4 decimal places.

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12/6/2015 Appendix B Homework

Monthly Payment x p (PV of an Ordinary Annuity)

= Present Value of Loan

$ 520 x =

Table Values are Based on:

n = 20

Present Value of Loan i = 1.0%

+

Cash Down Payment

=

Cost of the Automobile

Dave Krug finances a new automobile by paying $5,600 cash and agreeing to make 20 monthly payments of $520 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round PVA factor to 4 decimal places.

Explanation / Answer

Present value of loan = Monthly payment * Present value annuity factor

= 520 * 7.4694

= $3884.088

Cost of the Automobile = Cash down payment + Present value of loan

= 5600 + 3884.088

= $9484.088

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