Question

Lindsay needs to purchase a car. The car Lindsay is planning on
purchasing costs $10,000 and Lindsay has $1,000 that they will be using
as a down payment. Lindsay is offered credit terms of 3% APR for a term
of 2 years. Please calculate the following:
a. To purchase the car, what is the dollar amount that Lindsay will need to
finance? (1 point).
b. In one year, what is the dollar amount of interest that Lindsay will pay
on the loan? (Principal X Rate X Time) (1 point)
C. In two years, in order for Lindsay to finally OWN the car, what will the
actual cost of the car be in dollars? (2 points) (down payment+amount
financed+ 2 years interest=actual cost of car)

Answer 1

The quantity a lender costs a borrower and is a percent of the principal of the quantity loaned; is called as an interest rate. The total amount of interest she will pay is $418.68

What do you mean by interest on a loan?

A mortgage is normally mentioned on an annual foundation referred to as the once-a-year percent fee (APR). It is known as interest rate.

As per the information,

Costs = $10,000, Down payment is equal to $1,000; where PV is the amount owing = $9,000

Rate of interest is 3%, that is 3%/12 =  0.0025;

n is the number of periods = 3 x 12 = 36 months.

A) The dollar amount that Lindsay will need to finance is $9,000

B) Now, to calculate the installment amount to be paid that is P:

$PV = P(\frac{1 - (1 + r)^{-n} }{r} )$

$9,000 = P(\frac{1 - (1 + 0.0025)^{-36} }{0.0025} )\\\\\\9,000 = P\frac{ ( 1 - 0.9140)}{0.0025} \\\\9,000 = 34.4P\\\\P = 261.63\\\\Hence, the amount of installment that she will pay = \ 261.63$

C)The actual cost of the car after financing = $1,000 + $261.63 x 36 = $10418.68

The total amount of interest she will pay = $10418.68 - $10,000 = $418.68

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