Question

A couple with a newborn baby needs a new vehicle. They take out a $32,000.00 car loan at 5.7% compounded monthly for 6 years. The couple decided to pay an extra $55.00 per payment. (Round all answers to 2 decimal places.)

1.What is the monthly payment for this loan?

2.How much will the couple actually monthly payment be?

3.How many payments (that include the extra $55.00) will they make?

4.How much will the couple save?

Answer 1

Ans:- 1 we will use the PMT and Nper functions of excel to find the answers from (1) to (4)

For 1 Rate=5.7%/12, Nper=12*6=72, PV= -$32000, FV = 0

Monthly Payment for the loan will be $525.81.

(2) Actual Monthly Payment for this Loan if $55 extra is paid by the couple will be given by Monthly Payment + $55 = $525.81 + $55 = $580.81

(3) For Ans (3) Rate=5.7%/12,PMT = -$580.81 (since $55 is included in this payment), PV = -$32,000, FV = 0.

Therefore, the number of payments they have to make will be 64.03 (approx)

(4) For (4) Rate=5.7/12, PMT = -$525.81, PV=-$32,000, FV = 0

Amount couple will save will be given by

= Monthly Payments * Nper of Monthly Payments - Actual Payment done by the couple * Nper of Actual Payment

=$525.81 * 72 - $580.81 * 64.03 = $670.72.

Note:- Feel free to ask any doubt.