Question

When you purchased your​ car, you took out a​ five-year annual-payment loan with an interest rate of 5.9% per year. The annual payment on the car is $4,800. You have just made a payment and have now decided to pay off the loan by repaying the outstanding balance. What is the payoff amount for the following​ scenarios? a. You have owned the car for one year​ (so there are four years left on the​ loan)? b. You have owned the car for four years​ (so there is one year left on the​ loan)?

Answer 1

Interest Rate = 5.90%

Annual Payment = $4,800

Time Period = 5 years

Calculating PV of Car,

Using TVM Calculation,

PV = [FV = 0, PMT = 4800, T = 5, I = 0.059]

Present Value of Car = $20,274.47

a.

Paying total at the end of year 1,

Using TVM calculation,

FV = [PV = 20274.47, T = 1, PMT = 4800, I = 0.059]

FV = $16,670.66

So, $16,670.66 needs to be paid at the end of Year 1,

b.

Paying total at the end of year 4,

Using TVM calculation,

FV = [PV = 20274.47, T = 4, PMT = 4800, I = 0.059]

FV = $4,532.58

So, $4,532.58 needs to be paid at the end of Year 4,