Question

1. Mr. Jones decides to purchase a car for $10,000. The dealer offers to finance the car at 8% interest. The loan will be paid over 4 years with payments made monthly. What is the payment amount that Mr. Jones would be expected to pay?

Answer 1

The amount financed is the PV of the 48 monthly installments to be paid
against it, when discounted at the rate of 8%/12.
Hence, using the formula for finding PV of an annuity [monthly installments
constitute an annuity], we have the equality:
10000 = PMT*((1+0.08/12)^48-1)/((0.08/12)*(1+0.08/2)^48), where PMT is the
monthly payment to be made.
So, PMT = 10000*(0.08/12)*(1+0.08/12)^48/((1+0.08/12)^48-1) =	$         244.13