Question

In: Finance

You've agreed on a deal for a new car. The purchase price is $25,000 of which...

You've agreed on a deal for a new car. The purchase price is $25,000 of which you will finance $22,000 by taking out a loan from the dealer for 6.9% nominal interest compounded monthly for a term of 48 months. As you are about to sign the paperwork, you find that the dealer calculates your monthly payment to be $553.76/month. 2 (a). (1 pt.) How much interest will you pay on this loan ($)? (b). (1 pt.) How much interest ($) SHOULD you be paying if the loan is actually at the stated principal, interest, and term? (c). (1 pt.) What is the nominal annual interest rate of the loan that the dealer based its calculation upon, assuming that the loan is actually based on a term of 48 months (percent, two decimal places)?

Solutions

Expert Solution

2a: Interest paid on the loan = Instalment*48 - Loan amount

= 553.76*48 - 22000

= $4567.16

b: Using financial calculator
Input: PV = 22000, I/Y = 6.9/12= 0.575, N= 48

Find PMT as 525.80

c: Using financial calculator
Input: PV = 22000, N= 48, PMT= 553.76

Find I/Y as 0.8

This is the monthly rate

Nominal APR = 9.6%

jeff jeffy answered 2 years ago
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