Question

You want to buy a new work truck for $42,000. You will make a down payment of $4,000. What are your MONTHLY loan payments for a 5 year term. Use 9% annual nominal interest compounded monthly for your loan.

Please show work either either through excel or written for comparing and better understanding. I got 788.82 dollars

Answer 1

  

The Monthly Loan Amount = $788.82

Purchase price of a Truck        = $42,000

Down Payment Made              = $4,000

So, The Loan Amount will be          = $38,000

The Monthly payment can be calculated by Dividing the Present Value Annuity Factor from the Loan Amount which is calculated as follows,

Interest Rate Applicable = 9% / 12 = 0.75% [ Since the Compounding is Monthly ]

The Number of period = 5 years x 12 = 60 Years [Compounding is Monthly ]

The Present Value Annuity Factor [PVAF 0.75%, 60 Years] Will be “ 48.17337 “

[ This factor can be ascertained by using Present Value Annuity Factor Table ]

Therefore, The Monthly Loan Amount = Loan Amount / Present Value Annuity Factor

= $38,000 / 48.17337

= $788.82