Question

A friend of yours bought a new sports car with a ​$4,500 down payment plus a ​$25,000 car loan that is financed at an interest rate of 0.25​% per month for 60 months. After 2 ​years, the​ "Blue Book" value of her vehicle in the​ used-car marketplace is ​$14,000.

a. Calculate the required monthly loan payment on the car.

b. How much does your friend still owe on the car loan immediately after she makes her 24th ​payment?

c. Compare your answer to Part​ (b) to ​$14 comma 000. This situation is called being​ "upside down." What can she do about​ it?

d. If she decides to keep the car but pay ​$200 more each month​, how many months will it take her to payoff the remaining loan she​ owes?

Answer 1

interest rate = 0.5% , time period = 48 months

PV = $26000

monthly payment = y

y/(1 + 0.5%) + ..... + y/(1 + 0.5%)48 = 26000

y = $610.61

a)

Car loan owed (after 24th payment) = PV of remaining 24 monthly payments

Car loan owed (after 24th payment) = 610.61/(1 + 0.5%) + ...... + 610.61/(1 + 0.5%)24

Car loan owed (after 24th payment) = $13777.13