Question

You decide to buy a new car, with a drive-out price of $47,500. You finance the car at a 3.6% APR for 4 years, with end of month payments. Answer the following questions. Show your inputs for potential partial credit. Show your answer to the nearest $.01 a. What is your monthly payment? b. How much of your 15th payment is payment of principal? c. Over the entire life of the loan (assuming you pay on time), what was the total amount of interest you paid?

Answer 1

Answer a.

Cost of car = $47,500
Annual interest rate = 3.60%
Monthly interest rate = 0.30%
Period = 4 years or 48 months

Calculation of monthly payments:

I = 0.30%
N = 48
PV = 47500
FV = 0

PMT = -1064.02

Monthly payment = $1,064.02

Answer b.

Remaining period = 33 months

Calculation of loan outstanding:

I = 0.30%
N = 33
PMT = -1064.02
FV = 0

PV = 33382.94

Remaining principal after 15th payment is $33,382.94

Answer c.

Total amount paid = Monthly payment * Period
Total amount paid = $1,064.02 * 48
Total amount paid = $51,072.96

Total interest paid = Total amount paid - Amount borrowed
Total interest paid = $51,072.96 - $47,500
Total interest paid = $3,572.96