The price of a new car is 20000 Assume that an individual ma

The price of a new car is $20,000. Assume that an individual makes a down payment of 25% toward the purchase of the car and secures financing for the balance at the rate of 7%/year compounded monthly. (Round your answers to the nearest cent.) (a) What monthly payment will she be required to make if the car is financed over a period of 48 months? Over a period of 60 months?

(b) What will the interest charges be if she elects the 48-month plan? The 60-month plan?

Solution

$12,000 loan amount
r = .07/12 = .005
n = 48 or 72
1+r = 1.005
(1+r)^-n = .7871 for n = 48
1 - (1+r)^-n = .2129 for n = 48
payment = loan [ r/(1 -(1+r)^-n ) ]
payment for 48 months = 12,000[.005/.2129]
=$281.82

Now, you can solve and understand it.