You have decided to purchase a car. You have found a clean usedcar that will cos

Question

You have decided to purchase a car. You have found a clean usedcar that will cost you $8,500. You can finance your purchasethrough the dealer at an annual rate of 12% for 24 months. Thedealer requires a down payment of $2,000.

A.      What will bethe amount of your monthly payments?

B.      How much willyou pay the dealer over the life of the loan?

C.      How much ofthis amount will be interest?

D.      If you decidet pay off the loan at the end of the first year, how much will youowe the dealer?

Explanation / Answer

12%/12

282.44*24

6778.56 - 6000.00

282.44*12

A Amount of monthly payments Simply use PMT function in Excel NPER 24.00 i

12%/12

i 0.01 PV 6,000.00 (8000 - 2000 ) Amount of monthly payments 282.44 B Payment to dealer over the life of the loan

282.44*24

Payment to dealer over the life of the loan 6,778.56 C Amount of interest

6778.56 - 6000.00

Amount of interest 778.56 D Amount paid at the end of the 1st year

282.44*12

3,389.28 Present Value of the Amount of the loan 3,026.14 instalments paid Take FV = 3389.28         NPER=1            I = 12% & use PV function in Excel

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