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Monthly Loan Payments

Tim Smith is shopping for a used car. He has found one priced at $4,500. The dealer has told Tim that if he can come up with a down payment of $500, the dealer will finance the balance of the price at a 12% annual rate over 2 years (24 months).

1. Assuming that Tim accepts the dealer's offer, what will his monthly (end-of-month) payment amount be?
2. Use a financial calculator to help you figure out what Tim's monthly payment would be if the dealer were willing to finance the balance of the car price at a 9% annual rate.

Solution Preview

Note:The abbreviation has the following meaning.

PVIFA = Present Value Interest Factor for an Annuity
It can be read from tables or calculated using the following equation
PVIFA( n, r%) = [1-1/(1+r%)^n]/r%

Tim Smith is shopping for a used car. He has found one priced at $4,500. The dealer has told Tim that if he can come up with a down payment of $500, the dealer will ...

Solution Summary

The following solution is comprised of a 270 word response which outlines how to compute the monthly payments at the annual rates given. An Excel file attachment is also provided. By clicking on the cells on the Excel file, it displays how the calculations were computed.

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