Question

Chad agreed to pay $60,700 for a new tractor. The dealer is offering financing at an annual interest rate (APR) of 0.99%.If he puts $10,000 down and finances the remainder over the next 7 years, how much will be his monthly payment?

$627.71

$626.21

$624.98

$748.24

$624.46

Answer 1

The monthly payment is computed as follows:

Present value = Monthly payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is computed as follows:

= 0.99% / 12 (Since the payments are on monthly basis, hence divided by 12)

= 0.0825% or 0.000825

n is computed as follows:

= 7 x 12 (Since the payments are on monthly basis, hence multiplied by 12)

= 84

So, the monthly payment will be as follows:

$ 60,700 - $ 10,000 = Monthly payment x [ (1 - 1 / (1 + 0.000825)⁸⁴ ) / 0.000825 ]

$ 50,700 = Monthly payment x 81.12317322

Monthly payment = $ 50,700 / 81.12317322

Monthly payment = $ 624.98 Approximately

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