Heather has $13,000 to put down on a new car priced at $25,000. The bank offers

Question

Heather has $13,000 to put down on a new car priced at $25,000. The bank offers an annual interest rate of 5.5% compounded quarterly for 2 years.

(a) How much money does Heather need to borrow?
Heather needs to borrow $  .
(b) What are her payments?
Heather's payments are $  per quarter.
(c) Make an amortization table for her payments.

(d) How much interest did she pay in the two years?
Heather paid $  in interest.

End of Period Interest Charged Payment Payment towards Principal Outstanding Principal 0 -- -- -- 1 2 3 4 5 6 7 8

Explanation / Answer

a) Loan = 25,000 - 13,000 = 12,000

b) Quarterly Payment can be calculated using PMT function

N = 8, I/Y = 5.5%/4, PV = 12,000, FV = 0 => Compute PMT = $1,594.29

c)

d) Total Interest = $754.3 is the sum of all interest paid.

Period Interest Payment Principal Outstanding 0 $12,000.00 1 $165.0 $1,594.29 $1,429.29 $10,570.71 2 $145.3 $1,594.29 $1,448.94 $9,121.77 3 $125.4 $1,594.29 $1,468.87 $7,652.90 4 $105.2 $1,594.29 $1,489.06 $6,163.84 5 $84.8 $1,594.29 $1,509.54 $4,654.30 6 $64.0 $1,594.29 $1,530.29 $3,124.00 7 $43.0 $1,594.29 $1,551.34 $1,572.67 8 $21.6 $1,594.29 $1,572.67 $0.00

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