Question

Monthly loan payments  Personal Finance Problem  Tim Smith is shopping for a used luxury car. He has found one priced at $30,000. The dealer has told Tim that if he can come up with a down payment of 7,200​, the dealer will finance the balance of the price at a 8​% annual rate over 5 years ​(60 months).  ​(Hint: Use four decimal places for the monthly interest rate in all your​ calculations.)

a.  Assuming that Tim accepts the​ dealer's offer, what will his monthly​ (end-of-month) payment amount​ be?

b.  Use a financial calculator or spreadsheet to help you figure out what​ Tim's

monthly payment would be if the dealer were willing to finance the balance of the car price at an annual rate of 3.7​%?

a. ​ Tim's monthly​ (end-of-month) payment amount is ? (Round to the nearest​ cent.)

b. ​ Tim's monthly​ payment, if the dealer were willing to finance the balance of the car price at an annual rate of 3.7%​, would be

Answer 1

a.Information provided:

Price of the car= $30,000

Down payment= $7,200

Loan= Present value= $30,000 - $7,200= $22,800

Time= 5 years*12= 60 months

Interest rate= 8%/12= 0.6667% per month

The monthly payment is calculated by entering the below in a financial calculator:

PV= -22,800

N= 60

I/Y= 0.6667

Press the CPT key and PMT to compute the monthly mortgage payment.

The value obtained is 462.30.

Therefore, the monthly payment is $462.30.

b.Information provided:

Price of the car= $30,000

Down payment= $7,200

Loan= Present value= $30,000 - $7,200= $22,800

Time= 5 years*12= 60 months

Interest rate= 3.7%/12= 0.3083% per month

The monthly payment is calculated by entering the below in a financial calculator:

PV= -22,800

N= 60

I/Y= 0.3083

Press the CPT key and PMT to compute the monthly mortgage payment.

The value obtained is 104.94.

Therefore, the monthly payment is $104.94.