Question

A friend of yours bought a new sports car with a $5,500 down payment plus a $29,000 car loan that is financed at an interest rate of 0.50% per month for 60 months. After 2 years, the "Blue Book" value of her vehicle in the used-car marketplace is $17,000. 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 $17,000. 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? a. The required monthly payment is $ (Round to the nearest cent.) b. Your friend still owes $ on the car loan. (Round to the nearest dollar.) c. What is the best thing to do in this situation? Choose the correct answer below. O A. She should sell the car immediately. OB. She should stop paying out her loan as it is obviously unfair. C. She should keep the car longer and hope the vehicle remains in good working order. OD. In case the mileage is high, the car is worth more than $17,000 and she should consider selling it. d. It will take her months to payoff the remaining loan balance (Round-up to the nearest month)

Answer 1

(a) Required monthly payments= $560.65 as follows:

C6 f =PMT(C1,C2,C3,C4,C5) А B 0.50% 60 $ (29,000.00) 1 Interest rate Rate 2 Number of payments Nper 3 Present Value PV 4 Future value Fv 5 Timing of payments Type 6 Amount of monthly payments Pmt $560.65

(b) Balance in the loan after 24 payments= $18,429.18 as shown below:

L M NO 1 (7) Shedule of amortization Month Beginning Monthly Monthly Interest Principal End balance interest payments component Component balance rate =Col (2)*(3) Col (4)-(5) =Col (2)-(6) (1) (2) (3) (4) (5) (6) 1 29000 0.005 560.65 145 415.65 28584.35 2 28584.35 0.005 560.65 142.9217438 417.73 28166.62 23 19359.21 0.005 560.65 96.79602932 463.86 18895.35 24 18895.35 0.005 560.65 94.47675324 466.17 18429.18 25 18429.18 0.005 560.65 92.14588079 468.51 17960.67 26 17960.67 0.005 560.65 89.80335397 470.85 17489.82 29 30 31 32

(c) Disposal now will result in loss. Advised to keep the car longer and hope the vehicle in goods working order. The answer is option C.

(d) Number of months required to pay off the remaining amount after increasing the payments by $200= 26

(Together with the period already elapsed, total number of months= 24+26 = 50)

Details as follows:

Cipuudlu PUNIL ДІТЧІТЕТ А C6 c =NPER(C1,C2,C3,C4,C5) B 1 Interest rate Rate 0.50% 2 Amount of monthly payments Pmt 760.65 3 Present Value $ (18,429.18) 4 Future value 5 Timing of payments Type 6 Number of payments Nper 25.89067198 7 PV