Question

Monthly loan payments: Personal Finance Problem   

Tim Smith is shopping for a used luxury car. He has found one priced at $27,000. The dealer has told Tim that if he can come up with a down payment of ​$6,900​, the dealer will finance the balance of the price at a ​7% annual rate over 5 years ​(60 ​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 3.7​%?

a. ​ Tim's monthly​ (end-of-month) payment amount is ​$____.

Answer 1

a.Information provided:

Price of the car = $27,000

Down payment = $6,900

Loan= Present value= $27,000 - $6,900 = $20,100

Time= 5 years*12= 60 months

Monthly interest rate= 7%/12= 0.5833%

The monthly mortgage payment is calculated by entering the below in a financial calculator:

PV= -20,100

N= 60

I/Y= 0.5833

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

The value obtained is 398.

Therefore, the monthly payment is $398.

b.Information provided:

Price of the car = $27,000

Down payment = $6,900

Loan= Present value= $27,000 - $6,900 = $20,100

Time= 5 years*12= 60 months

Monthly interest rate= 3.7%/12= 0.3083%

The monthly mortgage payment is calculated by entering the below in a financial calculator:

PV= -20,100

N= 60

I/Y= 0.3083

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

The value obtained is 367.46.

Therefore, the monthly payment is $367.46.

In case of any query, kindly comment on the solution.