Ask Question
3 November, 14:19

The purchase price of a car is $25,000. Mr. Smith makes a down payment of $5000 and borrows the balance from a bank at 6% nominal annual interest, compounded monthly for five years. Calculate the nearest value of the required monthly payments to pay off the loan.

+3
Answers (1)
  1. 3 November, 14:38
    0
    Required monthly payments = $387

    Explanation:

    Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.

    The monthly installment is computed as follows:

    Monthly installment = Loan amount/annuity factor

    Loan amount; 25,000 - 5000 = 20,000

    Annuity factor = (1 - (1+r) ^ (-n)) / r

    r - monthly rate of interest, n - number of months

    r - 6%/12 = 0.5% = 0.005, n = 5 * 12 = 60 (there are 12 months in a year)

    Annuity factor = (1 - (1+0.005) ^ (-60)) / 0.005

    = 51.72556

    Monthly installment = Loan amount / annuity factor

    = 20,000/51.7256

    = 386.66

    Required monthly payments = $387
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “The purchase price of a car is $25,000. Mr. Smith makes a down payment of $5000 and borrows the balance from a bank at 6% nominal annual ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers