Question

You have just graduated and have decided to purchase a brand-new sports car to enjoy your newfound freedom. Your local credit union will provide financing for 60 months at a 9 percent annual rate, compounded monthly. You will give 15 percent of the $26,000 purchase price in cash to the dealer. The credit union will be used to finance the remaining 85 percent of the purchase price with the first payment due 1 month from today. What will be your monthly payment?

Answer 1

Answer:

Monthly Payment will be $458.76

Explanation:

First, we need to calculate the loan amount

Loan Amount = Purchase price x 85% = $26,000 x 85% = $22,100

No use following formula to calculate the Monthly payment

PV of Annuity = Periodic Annuity Payment x ( 1 - ( 1 + Periodic interest rate )^-numbers of periods ) / Periodic Intertest rate

Where

PV of Annuity = Loan Amount = $22,100

Periodic interest rate = Annual Interest rate / Numbers of payment periods in a year = 9% / 12 = 0.75% = 0.0075

Numbers of Periods = 60 months

Periodic Annuity Payment = Monthly Payment = ?

Placing values in the formula

$22,100 = Monthly Payment x ( 1 - ( 1 + 0.0075 )^-60 ) / 0.0075

$22,100 = Monthly Payment x 48.173373521

Monthly Payment = $22,100 / 48.173373521

Monthly Payment = $458.759650502

Monthly Payment = $458.76