Question

You have decided to buy a car that costs $23,400. Since you do not have a big down payment, the lender offers you a loan with an APR of 5.89 percent compounded monthly for 6 years with the first monthly payment due today. What is the amount of your loan payment?

A. $360.04

B. $386.59

C.$271.74

D. $270.41

Answer 1

Information provided:

Present value= $23,400

Time= 6 years*12= 72 months

Interest rate= 5.89%/12= 0.4908% per month

This can be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

The amount of loan payment is calculated by entering the below in a financial calculator in BGN mode:

PV= -23,400

N= 72

I/Y= 0.4908

Press the CPT key and PMT to compute the loan payment.

The value obtained is 386.59.

Therefore, the amount of loan payment is $386.59.

Hence, the answer is option b.

In case of any query, kindly comment on the solution.