Question

# You go to your local bank to borrow \$5,680 to buy a used BMW. Your loan...

You go to your local bank to borrow \$5,680 to buy a used BMW. Your loan will require monthly payments for 4 years at 6.00 percent interest compounded monthly.

What is the amount of your monthly loan payment?

 Monthly payment = [P × R × (1+R)^N ] / [(1+R)^N -1] Using the formula: Loan amount P \$                                                              6,840 Rate of interest per period: Annual rate of interest 6.000% Frequency of payment = Once in 1 month period Numer of payments in a year = 12/1 = 12 Rate of interest per period R 0.06 /12 = 0.5000% Total number of payments: Frequency of payment = Once in 1 month period Number of years of loan repayment = 4 Total number of payments N 4 × 12 = 48 Period payment using the formula = [ 6840 × 0.005 × (1+0.005)^48] / [(1+0.005 ^48 -1] Monthly payment = \$                                                            160.64

Monthly payment is \$160.64

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