Question

You want to buy a new sports car from Muscle Motors for $36,000. The contract is in the form of an annuity due for 60 months at an APR of 9.75 percent.

  

What will your monthly payment be?

Multiple Choice

• $739.26

• $760.47

• $754.34

• $769.43

• $716.63

Answer 1

Loan amount = 36000

APR = 9.75%

Monthly rate (I)= 9.75%/12 =0.008125

Number of months (n)= 60

It is paid by Annuity due for 60 months. So we will use present value of Annuity due Formula to Calculate Annuity due

Loan value or Present Value of annuity due formula = Annuity + (Annuity *(1-(1/(1+i)^(n-1)))/i)

36000= P+(P*(1-(1/(1+0.008125)^(60-1)))/0.008125)

36000= P+(46.72360215* P)

36000/47.72360215= P

=754.3437289

So Annuity due payable is $754.34