Question

A person has a $350 monthly car payment, which is based on 12% annual interest, compounded monthly. Determine the amount of car bought if it was financed for 60 months and no down payment was paid.

Answer 1

Answer: $15,734

Explanation:

The monthly interest is;

= 12%/12

= 1% per month

The Present value of the monthly payments is the cost of the car and since this is a specified periodic payment, the present value of an annuity can calculate it;

= 350 * $\frac{1 - (1 + 0.01)^{-60} }{0.01}$

= 350 * 44.9550384

= $15,734