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ID: 2756310 • Letter: H
Question
home / study / questions and answers / business / finance / you purchase a new car for $16,000 and decide to ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. . Question Please answer by hand: You purchase a new car for $16,000 and decide to borrow the entire $16,000. Your loan is for 4 years with an annual interest rate of 9% compounded monthly. You will make monthly payments on the loan. What number below is closest to the total interest (not principle) you have paid after 6 months of payments?
a) $641.22 b) $688.39 c) $712.43 d) $762.90 e) $798.05 f) $822.66
Explanation / Answer
Answer is b) 688.39
1st month Interest = Loan amount * (ROI/12)*100
Principal component = EMI - Interest component
Principal Outstandin (POS) = Original principal - Principal paid
1st month Interest =16000*9%/12
=120
Using PMT function in excel EMI = 398
So principal paid= 398-120= 278
Outstanding principal=16000-278=15722
2nd moth Interest=15722*9%/12=117.91
So principal paid= 398-117.91=280.09
Outstanding principal=15722-280.09=15441.91
and so on
3rd month interest payment=115.81
4th month interest payment=113.69
5th month interest payment=111.56
6th month interest payment=109.46
Total 6 months=120+117.91+115.81+113.69+111.56+109.46
=688.39
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