Question

You want to buy a car that will cost $33, 100. You have $2,750 cash as a down payment. You will finance the remainder of the cost through a loan that will require equal monthly payments of principal and 6.75% APR interest over five years. Compute the amount of the monthly loan payment that you will need to make. Rate 6.75% Nper PMT PV FV Type Prepare a loan amortization schedule using the format presented below. Use the amortization schedule to answer the following questions. How much total interest will you pay over the term of the loan? If you come into an unexpected sum of cash in three years, how much will you need to settle the loan? Period Interest Expense Monthly Payment Principal Payment Principal Balance

Answer 1

Monthly payment for 5 year loan= $597.39 as below:

fe =PMT(C1,C2,C3,C4,C5) Сб 1 Interest rate=6.75%/12 2 Number of payments= 5*12 3 Loan amount= ($33,100-$2,750)*-1 0.5625% Rate Nper 60 PV -30350 4 Future balance Fv 5 Type Type 6 Monthly payments $597.39 PMT

Total interest over the term of the loan= $5493.58 as the amortization schedule below (relevant portion only)

2 Monthly interest rate=6.75%/12=0.005625 3 Interestexpense = Previous balance*monthly interest rate 4 Principal payment=Monthly payment-Monthly interest 5 Principal balance= Previous balance-Principal payment 6 Amortization Schedule 7 Period Interest expense Monthly Payment Principal payment Principal balance 30,350.00 170.72 $ 597.39 $ 426.67 $ 29,923.33 2 $ 168.32 $ 597.39 $ 429.07 $ 10 29,494.25 60 $ 3.34 $ 597.39 $ 594.05 $ 68 0.00 69 Total 5,493.58 70

Amount required to settle at the end of three years is the principal balance after payment of 36th monthly payment ie., $13,376.67 as below:

A Monthly interest rate=6.75%/12=0.005625 2 Interestexpense = Previous balance*monthly interest rate 3 4 Principal payment=Monthly payment-Monthly interest 5 Principal balance= Previous balance-Principal payment 6 Amortization Schedule 7 Period Interest expense Monthly Payment Principal payment Principal balance 2$ 30,350.00 170.72 $ 597.39 $ 426.67 $ 29,923.33 2 $ 168.32 $ 597.39 $ 429.07 $ 29,494.25 10 81.07 $ 597.39 $ 35 $ 516.32 $ 43 13,895.90 36 $ 78.16 $ 597.39 $ 519.23 $ 44 13,376.67 37 Š 75 24 45 597 39 522 15 12 854 52