Question

Monthly loan payments Personal Finance Problem Tim Smith is shopping for a used luxury car. He has found one priced at $27,000. The dealer has told Tim that if he can come up with a down payment of $5,400, the dealer will finance the balance of the price at a 7% annual rate over 5 years (60 months). (Hint: Use four decimal places for the monthly interest rate in all your calculations.) a. Assuming that Tim accepts the dealer's offer, what will his monthly (end-of-month) payment amount be? b. Use a financial calculator or spreadsheet to help you figure out what Tim's monthly payment would be if the dealer were willing to finance the balance of the car price at an annual rate of 3.1%?

Answer 1

a.

Loan Amount = 27,000 - 5,400 = $21,600

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 21,600, FV = 0, N = 60, I = 0.07/12]

PMT = $427.71

b.

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 21,600, FV = 0, N = 60, I = 0.031/12]

PMT = $389.08