Question

2. An auto dealership is advertising that a new car with a sticker price of $19,140 is on sale for $16,999 if you pay in cash, or you get a finance for 60 months with a monthly payment of $319. Note that 60 payments × $319 per payment = $19,140, which is the sticker price of the car. By allowing you to pay in a series of payment (starting one month from now) instead of $16,999 in cash, the dealer effectively makes the loan of $16,999 to you. If you choose the financing option, what is the interest rate that the dealership charges on your loan? please include the step by step excel spreadsheet.

Answer 1

Answer:

Loan amount = $16,999

Monthly Payments = $319

Number of monthly payments = 60

Monthly payment is made at end of month.

We need to calculate rate of interest:

We can use RATE function of excel:

where

RATE(nper, pmt, pv, fv,type)

We have:

nper = 60

pmt = $319

pv = $16,999

fv =0

type = 0 (monthly payment at the end of month)

RATE(60, 319,-16999, 0, 0)

= 0.39746%

As rate of interest per month, charged = 0.39746%

Annual rate of interest = 0.39746% * 12 = 4.7695% or 4.77% (rounded off to two decimal)

Pictures from excel sheet:

1: Use of formula RATE (Picture from excel)

2: Resulted value of RATE :

answered by: anonymous