You are looking to purchase the latest model of the BMW 750 luxury sedan. The pr

Question

You are looking to purchase the latest model of the BMW 750 luxury sedan. The price of the car is $82,000. However, you negotiate a six-year loan, with no money down and no monthly payments during the first year. After the first year, you will pay $1,500 per month for the following five years, with a balloon payment at the end to cover the remaining principal of the loan. The APR interest rate on the loan with monthly compounding is 7 percent. What will be the amount of the balloon payment six years from now?

Explanation / Answer

price of sedan = $82000
first 12 months, no amount is paid
the APR rate of interest = 7% (with monthly compounding)

S -A = R (1 + {APR}/100)^{-t} + A_k [(1 + {APR}/100)^{-1}+(1 + {APR}/100)^{-2}+....+
(1 + {APR}/100)^{-60}
Use the formula for G.P.

Final balloon payment = $1,099,092.11

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