The purchase price of a car is 25000 Mr Smith makes a down p

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% interest for five years. Calculate the nearest value of the required monthly payments to pay off the loan. 1-$350 2.$400 3.$450 4. 4500

Solution

The formula for calculating the equated monthly installments (EMIs) is: EMI = [P*r * (1+r)ⁿ ] / [(1+r)ⁿ -1], where P stands for the loan amount or principal, r is the interest rate ( in decimals ) per month and n is the number of monthly installments.

Here, P = $ (25000 – 5000) = $ 20000, n = 5*12 = 60, and r = 6% p.a. = 6/1200 per month = 0.005. Therefore, the monthly repayment = [ 20000* 0.005( 1+ 0.005)⁶⁰ ] / [ ( 1 + 0.005)⁶⁰ - 1) ] = [ 100(1.005)⁶⁰ ] / [(1.005)⁶⁰ – 1] = (100*1.348850153)/ 0. 348850153 = 134.88503153/ 0.348850153 = $ 386. 66. The closest answer is $ 400.