Monthly Loan payments: Personal Finance Problem Tim Smith is Shopping for a used
ID: 2761689 • Letter: M
Question
Monthly Loan payments: Personal Finance Problem Tim Smith is Shopping for a used car. He found one priced at $5600. The salesman has told Tim that if he can come up with a down payment of $700, the dealer will finance the balance of the price at an annual rate of 9% over 2 years (24 months) ( Hint use four decimal places for the monthly interest rate in all your calculations.)
a. Assuming that Tim accepts the dealer offer, what will his monthly ( end of month) payment amount be? b. Use a financial calculator or spreadsheet to help you figure out what Tim's monthly payment would be if the dealer were willing to finance the balance of the car price at an annual rate of 6%?
Explanation / Answer
1
Calculation of monthly ( end of month) payment amount at 9% rate
Price of Car
$ 5,600
Down Payment
$ 700
Loan Amount = 5600-700 =
$ 4,900
Monthly Rate (9%/12) =
0.75%
Number of months
24
Present value of Annuity $1 (0.75%, 24 Periods)
21.88915
Monthly ( end of month) payment amount = 4900 / 21.88915 =
$ 223.86
2
Calculation of monthly ( end of month) payment amount at 6% rate
Price of Car
$ 5,600
Down Payment
$ 700
Loan Amount = 5600-700 =
$ 4,900
Monthly Rate (6%/12) =
0.50%
Number of months
24
Present value of Annuity $1 (0.75%, 24 Periods)
22.56287
Monthly ( end of month) payment amount = 4900 / 21.88915 =
$ 217.17
1
Calculation of monthly ( end of month) payment amount at 9% rate
Price of Car
$ 5,600
Down Payment
$ 700
Loan Amount = 5600-700 =
$ 4,900
Monthly Rate (9%/12) =
0.75%
Number of months
24
Present value of Annuity $1 (0.75%, 24 Periods)
21.88915
Monthly ( end of month) payment amount = 4900 / 21.88915 =
$ 223.86
2
Calculation of monthly ( end of month) payment amount at 6% rate
Price of Car
$ 5,600
Down Payment
$ 700
Loan Amount = 5600-700 =
$ 4,900
Monthly Rate (6%/12) =
0.50%
Number of months
24
Present value of Annuity $1 (0.75%, 24 Periods)
22.56287
Monthly ( end of month) payment amount = 4900 / 21.88915 =
$ 217.17
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