Question

You are in the process of purchasing a new automobile that will cost you $27,500. The dealership is offering you either a $2500 rebate (applied toward the purchase price) or 1.9% financing for 48 months (with payments made at the end of the month). You have been pre-approved for an auto loan through your local credit union at an interest rate of 6.5% for 48 months. If you take the $2500 rebate and finance your new car through your credit union your monthly payments will be closest to:

Answer 1

Answer:

there are no options listed, but the answer should be $592.91 or the closest option

Explanation:

this is an ordinary annuity and in order to calculate the monthly payment you can use the present value of an annuity formula:

present value = monthly payment x PV annuity factor

monthly payment = present value / PV annuity factor

• present value = $27,500 - $2,500 (rebate) = $25,000
• PV annuity factor (0.541667%, 48 periods) = 42.16421

monthly payment = $25,000 / 42.16421 = $592.91