What formula would this be using/what do you do to end up at therate? You are ge

Question

What formula would this be using/what do you do to end up at therate?

You are getting ready to buy a car and would like to estimate
your monthly payments. The total cost of the car is $13,786 and youwill put down $3,000,
so you will need a loan for $10,786. Your bank is currentlyoffering a finance rate of 6.8%
per year over 5 years, compounded continuously.

(a) Calculate the annual rate (in other words, the income streamA(t) at which you need to pay off the loan.

Hint: the income stream must be found such that the present valueis equal to the initial loan value of $10,786. Note in this problemthat A is constant and does not vary over the 5 year period. Theanswer should be $2,544.67.

(c) How much do you end up paying to borrow the $10,786?

Explanation / Answer

5 years

Present Value of the Loan Amount $13,786.00 Less: Down Payment $3,000.00 Present Value (PV) of the Loan $10,786.00 Basing on Hint, the Payment (PMT)Amount is $2,544.67 Using Excel Rate Function: Number of Periods (Nper)

5 years

Payment Amount (PMT) -$2,544.67 Present Value of the Loan (PV) $10,786.00 Annual Rate 5.77%

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