Question

27. Currently, you owe the bank $16,475 on a car loan. The loan has an interest rate of 9.25 percent and monthly payments of $285. You realize that you cannot make enough money to keep up with the payments. After talking with your banker and explaining the situation, he has agreed to lower the monthly payments to $225 and keep the interest rate at 9.25 percent. How much longer will it take you to repay this loan than you had originally planned?
a. 3.86 months
b. 12.92 months
c. 15.18 months
d. 31.41 months
e. 35.30 months

Please show me steps on a financial calculator including negative sign, keys, etc

Answer 1

Monthly payment of $285

Information provided:

Present value= $16,475

Monthly interest rate= 9.25%/12= 0.7708%

Monthly payment= $285

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

PV= -16,475

PMT= 285

I/Y= 0.7708

Press the CPT key and N to compute the time of the loan.

The value obtained is 76.82.

Therefore, it will take 76.82 months to repay the loan.

Monthly payment of $225

Information provided:

Present value= $16,475

Monthly interest rate= 9.25%/12= 0.7708%

Monthly payment= $225

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

PV= -16,475

PMT= 225

I/Y= 0.7708

Press the CPT key and N to compute the time of the loan.

The value obtained is 108.23.

Therefore, it will take 108.23 months to repay the loan.

= 108.23 - 76.82

= 31.41.

Therefore, it will take 31.41 months more to repay the loan than originally planned.

Hence, the answer is option d.