Question

In: Finance

Your dream car is selling at $250,000, you are plan to finance it for five years...

Your dream car is selling at $250,000, you are plan to finance it for five years at annual rate of 6% compounded monthly. If the first payment is due in one month, the monthly payment is closet to:

4,945.76

4,833.20

4,289.08

4,166.67

Solutions

Expert Solution

The solution is 4833.20

Equated Monthly Installment = P * r *[ (1+r)n / ((1+r)n - 1) ]

where,

P= Principal Loan Amount

r=  rate of interest calculated on monthly basis

n=  loan term / tenure / duration in number of months

Here,

P = $250000

r = 6/12 = 0.5%

n = 12*5 = 60 months

Applying the values,

EMI = 250000 * 0.5% [ (1+ 0.5%)60 /(( 1+ 0.5%)60 - 1)]

= 1250* [ 3.86656]

= 4833.2


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