Monthly loan payments Personal Finance Problem Tim Smith is shopping for a used

Question

Monthly loan payments Personal Finance Problem Tim Smith is shopping for a used car. He has found one priced at $4,800. The salesman has told Tim that if he can come up with a down payment of $900, the dealer will finance the balance of the price at an annual rate of 15% over 5 years (60 months). (Hint: Use four decimal places for the monthly interest rate in all your calculations.) a. Assuming that Tim accepts the dealer^?s offer, what will his monthly (end-of-month) payment amount be? b. Use a financial calculator or spreadsheet to help you figure out what Tim^'s monthly payment would be if the dealer were willing to finance the balance of the car price at an annual rate of 11%?

Explanation / Answer

a) The formula to calculate EMI = {P*i*(1+r)^n/((1+r)^n-1)}

where P = principal amount

i= monthly interest rate

n= no of months over which loan is repaid

In our case,

P= 4800-900(down payment)= 3900

i= 15/12= 1.25%

n= 60 months

Hence, EMI ={3900*0.0125*(1.0125)^60/((1.0125)^60-1)}

= 102.72/1.107

= 92.77 $

b)

Now, in this case n=60 months

i= 11/12= 0.9166%

P=3900

Hence, EMI using the same above formula = 84.79$

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.