Question

David purchased a new SUV today for $40,000. It was financed using a six-year loan with a 5 percent interest rate (compounded monthly). How much will David owe on his vehicle loan after making payments for four years?

a. $20,402.82

b. $19,852.42

c. $14,694.77

d. $18,985.57

Answer 1

Solution :-

Amount Financed = $40,000

Interest Rate Per month = 5% / 12 = 0.4167%

Total Installments = 6 * 12 = 72

Now Value of Each Installment = $40,000 / ( P/A , 0.4167% , 72 )

= $40,000 / 62.0904

= $644.222

Now after Four Years installments remaining = 72 - ( 12 * 4 ) = 24

Now Value of Loan after 4 Years = $644.222 * ( P/A , 0.4167% , 24 )

= $644.222 * 22.7936

= $14,694.77

Therefore Correct Answer is (c)

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