Question

Derek borrows $39,587.00 to buy a car. He will make monthly payments for 6 years. The car loan has an interest rate of 6.43%. After a 14.00 months Derek decides to pay off his car loan. How much must he give the bank?

Suppose you deposit $1,974.00 into an account today that earns 15.00%. It will take ___ years for the account to be worth $2,535.00

Answer 1

1. Information provided:

Present value= $39,587

Time= 6 years*12= 72 months

Interest rate= 6.43%/12= 0.5358% per month

The question is solved by first computing the monthly payment of the loan.

Enter the below in a financial calculator to compute the monthly payment of the loan:

PV= -39,587

N= 72

I/Y= 0.5358

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 664.1361.

Hence, the monthly payment is $664.14.

The amount to be paid to pay off the loan: $39,587 – 14*$664.14.

                                                                              = $39,587 – 9,297.91

                                                                              = $30,289.09.

2. Information provided:

Present value= $1,974

Future value= $2,535

Interest rate= 15%

The number of years is computed by entering the below in a financial calculator:

PV= -1,974

FV= 2,535

I/Y= 15

Press the CPT key and N to compute the number of years.

The value obtained is 1.7897.

Therefore, it will take 1.79 years for the account to be worth $2,535

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