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.