Dave Krug finances a new automobile by paying $6,600 cash and agreeing to make 1

Question

Dave Krug finances a new automobile by paying $6,600 cash and agreeing to make 10 monthly payments of $560 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 $1) (Use appropriate factor(s) from the tables provided. Round PVA factor to 4 decimal places.) Answer is complete but not entirely correct. Monthly Payment Present Value of Loan x Table Factor 6.8137 x$ 3,815.67 Table Values are Based on: 10 12% Present Value of Loan Cash Down Payment Cost of the Automobile $ 3,815.67 |+$ 6,600°= |$ 10,415.67

Explanation / Answer

Computation of Present Value of Loan Monthly Payments =$560 Numbe rof Payments =10 Annual Interest Rate =12%, Monthly interest rate =12%/12 =1% Annuity Factor at 1% for 10 Periods =9.4713 Table value are based on   n=10   , I =1% Present Value of Loan = Monthly Payment * Annuity Factor at 1% for 10 periods =$560*9.4713 =$5303.93 Total Cost of the Automobile =Present Value of the Loan + Cash Down payment Total Cost of the Automobile =$5303.93+$6600 =$11903.93

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