Question

In: Finance

Suppose you purchase a new car for $27,000. You do not have money in your bank...

Suppose you purchase a new car for $27,000. You do not have money in your bank today but since you have just graduated from UTSA and have a job with high five figure annual salary, you see no problems in taking a five-year loan from your dealer. After looking at your options, you agree to the following terms: 0% down payment with 6.75% APR (compounded monthly). The loan must be paid back in monthly payments over the five years. (Round your answers to the nearest cent.)

(a)How much (in $) do you need to pay each month? (Hint: If you cannot solve this question, make up a reasonable number as an answer, say $700, and answer the remaining parts)

$

(b)In the first month, how much (in $) of the payments goes towards paying off principal and how much (in $) goes towards interest payments?

interest$

principal$

How much principal (in $) is remaining after the first month?

$

(c)What about in the second month? How much (in $) of the payments goes towards paying off principal and how much (in $) goes towards interest payments?

interest$

principal$

How much principal (in $) is remaining after the second month?

$

(d)Suppose you want to sell the car after 3 years (36 months). When you sell the car, you must pay off the remaining loan (principal). How much (in $) do you still owe?

$

Solutions

Expert Solution

Part (a): Monthly payments= $531.45 calculated as follows:

Part (b): In the first month,

Amount going to interest= $151.88

Amount going to principal= $379.58

Part (c): In the second month,

Amount going to interest= $149.74

Amount going to principal= $381.71

Principal remaining after second month= $26,238.71

Part (d):

Principal remaining after 3 years= $11,900.17

Relevant portion of amortization schedule appended below:


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