You need $20,000 to purchase a used car. Your wealthy uncle is willing to lend y

Question

You need $20,000 to purchase a used car. Your wealthy uncle is willing to lend you the money as an amortized loan. He would like you to make annual payments for 6 years, with the first payment to be made one year from today. He requires a 6% annual return. What will be your annual loan payments? Round your answer to the nearest cent. Do not round intermediate calculations. $

How much of your first payment will be applied to interest and to principal repayment? Round your answer to the nearest cent. Do not round intermediate calculations.

Interest: $

Principal repayment: $

Explanation / Answer

PV = 20,000

FV = 0

rate = 6%

N = 6

use PMT function in Excel

annual loan payments = 4,067.25

interest = 6% of 20,000 = 1,200

principal repayment = 4067.25 - 1200 = 2,867.25

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