Question

You have just purchased a new car! You made a down payment of $5,000 and financed the balance. According to the purchase agreement, you must pay $600/month for four years, beginning one month from today. The credit agreement is based on an annual interest rate of 12%. What was the cost of the car? Select one:
a. 6,822
b. 22,784
c. 27,784
d. 28,800
e. None of the above

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

The down payment of $5,000 and financed the balance. According to the purchase agreement, you must pay $600/month for four years, beginning one month from today. The credit agreement is based on an annual interest rate of 12%.

First, we need to calculate the final value of the monthly payment.

FV= {A*[(1+i)^n-1]}/i

A= annual deposit= 600

i= 0.12/12= 0.01

n= 12*4= 48

FV= {600*[(1.01^48)-1]}/0.01= 36,733.56

Now, we calculate the present value:

PV= FV/ (1+i)^n= 36,733.56/ (1.01^48)= 22,784

Total cost= 22,784 + 5,000= $27,784