Question

Suppose that you are interested in borrowing $6400 for the purchase of a second hand car....

Suppose that you are interested in borrowing $6400 for the purchase of a second hand car. Suppose that you would like to make fix amount quarterly payments (making the first payment by the end of the first quarter), and that you want to be debt free by the end of 7 and a half (7.5) years.

If the interest rate charged by the bank is 4.6%, then:

The quarterly amount that you would have to pay for this loan is

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Homework Answers

Answer #1

We can use Present value of annuity formula to find the answer:


Where,
PVA = Present value of annuity
A = Annuity or payment
i = Interest rate in decimal form
a = Number of compounding in a year
n = Number of years

Substituting the values in the formula, we get:

Therefore, the quarterly amount that you would have to pay for this loan is  $253.46.

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