Question

Esther pays $355 per month for 5 years for a car. She made a down payment of $2,500. If the loan costs 7.1% per year compounded monthly, what was the cash price of the car? I really just need the formula. I can't for the life of me figure it out!

Answer 1

The cash price of the car includes the amount of the loan plus the amount of the down payment
Cash price=the loan of the car+down payment

First find the amount of the loan by using the formula of the present value of an annuity ordinary which is
Pv=pmt [(1-(1+r/k)^(-kn))÷(r/k)]
Pv the amount of the loan ?
PMT payment per month 355
R interest rate 0.071
K compounded monthly 12
N time 5years
Pv=355×((1−(1+0.071÷12)^(−12
×5))÷(0.071÷12))
=17,885.56

Cash price=17,885.56+2,500
=20,385.56....answer