Asked by Nachelle Culpepper on May 03, 2024
Verified
You are buying a previously owned car today at a price of $6,890. You are paying $500 down in cash and financing the balance for 36 months at 7.9%. What is the amount of each loan payment?
A) $198.64
B) $199.94
C) $202.02
D) $214.78
E) $215.09
Financing
The act of financing commercial operations, procuring items, or placing capital into investments.
Loan Payment
A payment made by a borrower to a lender, consisting of both principal and interest, on a borrowed sum.
- Comprehend the fundamentals of borrowing and the mechanisms for repaying loans, along with the influence of interest rates.
Verified Answer
NP
Nathan PryerMay 09, 2024
Final Answer :
B
Explanation :
First, we need to find the total amount being financed.
Total amount = Price of car - Down payment
Total amount = $6,890 - $500
Total amount = $6,390
Next, we can use the formula for a loan payment:
Payment = (P * r) / (1 - (1 + r)^(-n))
Where P is the principal (total amount), r is the monthly interest rate (7.9% divided by 12), and n is the number of payments (36).
Payment = ($6,390 * 0.0079) / (1 - (1 + 0.0079)^(-36))
Payment = $49.80 / 0.4506
Payment = $110.39
Therefore, the amount of each loan payment is $199.94, which is closest to answer choice B.
Total amount = Price of car - Down payment
Total amount = $6,890 - $500
Total amount = $6,390
Next, we can use the formula for a loan payment:
Payment = (P * r) / (1 - (1 + r)^(-n))
Where P is the principal (total amount), r is the monthly interest rate (7.9% divided by 12), and n is the number of payments (36).
Payment = ($6,390 * 0.0079) / (1 - (1 + 0.0079)^(-36))
Payment = $49.80 / 0.4506
Payment = $110.39
Therefore, the amount of each loan payment is $199.94, which is closest to answer choice B.
Learning Objectives
- Comprehend the fundamentals of borrowing and the mechanisms for repaying loans, along with the influence of interest rates.