You have decided to buy a car that costs $23,000. Since you do not have a...

You have decided to buy a car that costs $23,000. Since you do not have a big down payment, the lender offers you a loan with an APR of 5.87 percent compounded monthly for 5 years with the first monthly payment due today. What is the amount of your loan payment?

Expert Solution

Solution

Present value of annuity due=Annuity payment*((1-(1/(1+r)^n))/r)*(1+r)

where

r-discount rate per period-5.87/12=0.489167% per month

n-number of periods -5*12=60

Present value of annuity due=Loan amount=23000

Putting values in formula

23000=Annuity payment*((1-(1/(1+.00489167)^60))/.00489167)*(1+.00489167)

Thus annuity payment=Monthly payment=$441.11

Total loan payment made=441.11*60=$26466.60

jeff jeffy answered 2 years ago

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