Question

After visiting several automobile dealerships, Bob selects the car he wants. He needs a loan of...

After visiting several automobile dealerships, Bob selects the car he wants. He needs a loan of $8,000. In shopping at several finance companies, he learns that interest on most automobile loans is quoted at add-on rates. Bob borrows $8,000 for a period of four years at an add-on interest rate of 11 percent.

a. What is the total interest on Bob’s loan?

b. What is the annual percentage rate (APR)?

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Homework Answers

Answer #1

Part (a):

Total interest I = P*R*N

Where P= Principal (Loan amount) given as $8,000. R= Interest rate (11%) and N- Period (number of years) given as 4 years.

Substituting the values,

Total interest (I) = 8,000*11%*4 = $3,520.

Part (b):

Yearly payment= (P+I)/N= (8000+3520)/4 = 11520/4= $2,880

Annual Percentage Rate (APR)= 16.367489% calculated using RATE function of Excel as follows:

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