Question

You borrow $12,600 to buy a car. The terms of the loan call for monthly payments for five years at an interest rate of 4.65 percent, compounded monthly. What is the amount of each payment

Answer 1

Answer:

$627

Explanation:

To find the answer, we use the present value of an annuity formula:

$P = A[1-(1+i)^{-n} /i]$

Where:

• P = Present value of the investment
• A = Value of the annuiry
• i = interest rate
• n = number of compounding periods

Now, we plug the amounts into the formula:

$12,600 = A[1-(1+0.0465)^{-60} /0.0465\\]$

12,600 = A (20.09870355)

A = 12,600/20.09870355

A = 627

Thus, the value of the monthly payments is $627