Question

You are saving money to buy a Car. You will need $20,000 as the price of the car today. If you can make a down payment now of $8000 , and want to pay the rest by installments,

- how much each deposit per month should be if you want to pay the rest of the amount in 24 months if the interest rate on the deposit is 6% per year?
- If you can deposit $664 per month how long will it take you to pay the residual amount from the price of the car?

Please give me details and 100% right answer.

Answer #1

A. Since I have already paid $8000, the amount remaining is $12,000. Let the equal installment amount be A. The per month interest rate becomes 0.5%. So, the present value formula gives:

12000 = A/(1.005) + A/(1.005)^2 + A/(1.005)^3 + A/(1.005)^4 + ......... + + A/(1.005)^24

A = 12000/22.56 = $531.8473

B. In this question, we need to find how many months of installments we need to pay. So

12000 = 664/1.005 + 664/1.005^2 + .....+ 664/1.005^n

We have to find n. We do this by hit and trial.

We find that n=19. Hence, it will take 19 months to pay the residual amount back.

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