Question

Monthly loan payments  Personal Finance Problem   Tim Smith is shopping for a used luxury car. He has found one priced at $35,000.

The dealer has told Tim that if he can come up with a down payment of $5,700​,

the dealer will finance the balance of the price at a 77​% annual rate over 22 years

​(24 ​months).  ​(Hint: Use four decimal places for the monthly interest rate in all your​ calculations.)

a.  Assuming that Tim accepts the​ dealer's offer, what will his monthly​ (end-of-month) payment amount​ be?

b.  Use a financial calculator or spreadsheet to help you figure out what​ Tim's monthly payment would be if the dealer were willing to finance the balance of the car price at an annual rate of 3.1​%?

Please Post Excel Formulas ******

Answer 1

Question has mentioned loan period over 22 years and then in bracket (24 months). I am assuming 24 months is the time period of loan.

a. Interest rate of 77% is annual. to calculate monthly payment, we need monthly interest rate.

monthly interest rate = annual interest rate/12

Price of car	$35,000
down payment	$5,700
Loan amount	$29,300
Monthly interest rate	6.4167%
Loan period in months	24
Monthly payment	$2,425.24

Formula

In the above formula, PV has been input as negative value so that PMT comes as a positive value. If you enter PV as positive value then formula give PMT as negative value because PMT is the cash outflow which you will need to pay every month.

b. financing the balance of the car price at an annual rate of 3.1​%

Price of car	$35,000
down payment	$5,700
Loan amount	$29,300
Monthly interest rate	0.2583%
Loan period in months	24
Monthly payment	$1,260.65

Formula