Question

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today.

Which one of the following statements is correct concerning this purchase?

a) The present value of the car is equal to $500 + (36 × $450).
b) The $500 is the present value of the purchase.
c) The car loan is an annuity due.
d) To compute the initial loan amount, you must use a monthly interest rate.
e) The future value of the loan is equal to 36 × $450.

Answer 1

Answer:

The correct answer is D.

Step-by-step explanation:

You need to use the monthly interest rate in order to translate any of the 36 payments in the future to the present and add these payment to the down payment.

It Calls Present value an to bring the payments to the present it is necesary to use the  compound interest equation:

$P.V= \frac{F.V}{(1+i)^t}$

P.V.= Present Value

F.V. =Future value

i= Interes rate

t= numbre or periods.