Question

1. You decide to buy a new car. You negotiate with the dealer and get the car for $40,000. What will be your monthly payment if you finance the purchase through your bank with a 6-year, 11% auto loan (assume no down payment).

a. What if you made a down payment of $4,000? What would be the monthly payment for the car?

Answer 1

1)
Monthly payment	=	Loan amount	/	Present value of annuity of 1
	=	$           40,000	/	52.53735
	=	$           761.36
Working:
Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
	=	52.5373463		i	=	11%/12	=	0.009167
				n	=	6*12	=	72
2)
Monthly payment	=	Loan amount	/	Present value of annuity of 1
	=	$           36,000	/	52.53735
	=	$           685.23
Working:
Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
	=	52.5373463		i	=	11%/12	=	0.009167
				n	=	6*12	=	72