Question

Dave krug finances a new automobile by paying $6,500 cash and agreeing to make 40 monthly payments of $500 each, the first payment to be made one month after the purchase. the loan bears interest at an annual rate of 12%. what is the cost of the automobile?

Answer 1

P = (C - down payment)*D

D = [i/12]/[1-(1+i/12)^-12n] = [0.12/12]/[1-(1+0.12/12)^-40] = 0.03046

Therefore,

500 = (C-6,500)*0.03046
C-6,500 = 500/0.03046 = 16,417.34
C = 22,917.34

The cost of the automobile was $22,917.34