Question

You want to buy a new sports car from Muscle Motors for $59,000. The contract is in the form of a 72-month annuity due at a 7.25 percent APR.

What will your monthly payment be?

A) $1,027.04 B) $986.77 C) $1,012.99 D) $956.56 E) $1,006.91

Answer #1

Solution: | |||

Answer is C). $1,012.99 | |||

Working Notes: | |||

Monthly Payments = $1,012.99 | |||

present value of annuity = Px[ 1-1 /(1 + i)^n)]/ i | |||

P=monthly payment =?? | |||

i= interest rate per period = 7.25%/12 | |||

n= no. Of period = 72 | |||

PV of annuity= Mortgage loan $59,000 | |||

present value of annuity = Px[ 1-1 /(1 + i)^n)]/ i | |||

59,000 = P x (1-1/(1+(7.25%/12))^72)/(7.25%/12) | |||

or 59,000 = P x 58.24347185 | |||

P= 59,000/58.24347185 | |||

P= $1,012.989063 | |||

P=$1,012.99 | |||

Please feel free to ask if anything about above solution in comment section of the question. |

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