A car is purchased for $6,801.95 with $2,000 down and a loan to be repaid at...

Question

Question

A car is purchased for $6,801.95 with $2,000 down and a loan to be repaid at $100 a month for 2 years followed by a balloon p

Answer 1

Answer #1

Loan amount = 6801.95 - 2000 = $4801.95

monthly payment of $100 is made at the end of each month

let the payment at the end of 2nd year = 100 + X

So balloon payment is 100 + X

interest rate is 6% compounded monthly

So PV of ordinary annuity of 100 is

PV = A*(1 - (1+r/n)^(-n*t))/(r/n)

So, 4801.95 = 100*(1 - (1+0.06/12)^(-12*2))/(0.06/12) + X/(1+0.06/12)^(2*12)

=> 4801.95 = 2256.29 + X/1.127

=> X = 2869.37

So balloon payment = 100 + 2869.37 = $2969.37

Answer 2

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